Will that be yield or capital gains, dividend ETF investors?
Just like individual dividend stocks, dividend ETFs divide roughly into two distinct groups. We have funds with high yields and lesser unit price returns, and funds with strong returns and modest yields. Just as you compare costs, diversification and other factors in choosing dividend ETFs, be sure to consider the trade-off between yield and unit price performance.
Globeinvestor.com data shows that as of the final week of April, yields on Canadian dividend ETFs ranged from 4.2 per cent for the BMO Dividend ETF (ZDV) to 2.8 per cent for the Horizons Active Canadian Dividend ETF (HAL). ZDV's unit price over the previous 12 months fell 1.8 per cent, while HAL rose 5.9 per cent; over the past three years, ZDV gained a cumulative 8.8 per cent while HAL jumped 32 per cent.
There are about a dozen Canadian dividend ETFs, all of them strung between ZDV and HAL in terms of yield and unit price return. Why the variance when all hold the same thing – Canadian dividend-paying stocks? The answer is that each uses a different strategy. Some target an index of dividend-payers, some use a rules-based screening process and some are actively managed, which is to say their portfolio choices are at the discretion of a manager. In a sense, the yield on a dividend ETF tells us how successful the stocks in the fund have been. Higher yields mean the shares have lagged, and low yields mean the shares have been strong.
If you're an income investor – you put a priority on a strong flow of dividend income ahead of share price gains – then a high-yielding ETF may work for you. Put off by the weak share price performance of the top-yielding dividend ETFs? They may present a buy-low opportunity.
Growth investors, consider the better performing ETFs over the high yielders. What you lose in dividend yield you could more than make up for through the total return of dividends plus share price changes. Consider HAL, with a total return of 7.7 per cent for the year to March 31, and ZDV, up 0.6 per cent. Two different dividend ETFs for two different investing goals.