Nothing makes a case for dividend ETFs like low interest rates.
The yield on the five-year Government of Canada slipped below 1.5 per cent in late March, while rates on five-year guaranteed investment certificates ranged from 2.2 to 3.2 per cent. Almost all of the dividend and income exchange-traded funds covered in this edition of the Globe and Mail ETF Buyers’ Guide have yields of 4 per cent or more.
Use the guide to dig beyond yield in selecting funds. Note the wide variation on fees and the lack of any funds as cheap as you’ll find in the Canadian equity category. Several of the ETFs listed here are arguably financial services sector funds – that’s how loaded they are with banks and insurance companies. Others have names that don’t really reflect their actual holdings.
Dividend ETFs provide monthly dividend income with tax advantages in non-registered accounts. As a result of the dividend tax credit, investors pay significantly less tax on dividends paid by Canadian corporations than they do on regular income like bond interest. Income-oriented investors will like the fact that almost all dividend ETFs make monthly payments.
ETFs holding strictly dividend stocks are covered here, plus income funds holding a mix of dividend stocks, preferred shares and both government and corporate bonds. Funds chosen for this list have a five-year history at least and, with one exception (Horizons Active Canadian Dividend ETF), have achieved a certain following among investors as shown by asset size.
One final note – some of the funds on this list may contain U.S. and international stocks, which produce dividends that are not eligible for the dividend tax credit in non-registered accounts.
We’ll close out the 2019 edition of the ETF Buyer’s Guide by looking at U.S. and global dividend and income funds on April 12. The guide has already covered Canadian, U.S. and international/global equity funds, as well as bond funds.
Assets: Shown to give you a sense of how interested other investors are in a fund.
Management expense ratio (MER): The MER is the main cost of owning an ETF on a continuing basis; published returns are shown on an after-fee basis.
Trading expense ratio (TER): The TER is the cost of trading commissions racked up by the managers of an ETF as they make adjustments to the portfolio of investments; add the TER to the MER for a full picture of a fund’s cost.
Yield: Supplied by Globeinvestor.com or ETF company websites and based on the recent pattern of monthly payouts and the latest share price; may reflect payments of dividends, bond interest and return of capital; check the fund profiles on ETF issuer websites to find out what kinds of income have been contained in distributions in recent years.
Top sector weightings: Sectors like utilities, real estate, pipelines and telecoms may be sensitive to rising interest rates. Energy, where dividend flows depend to some extent on how firm oil and gas prices are, is also a big component of some funds. Note the heavy financial weighting of some funds.
Returns: ETF companies show total returns, or share-price change plus dividends or distributions.
Three-year beta: Beta is a measure of volatility that compares funds to a benchmark stock index, which always has a beta of 1.0. A lower beta means less volatility on both the up and down side. Beta offers a chance to see how well low-volatility ETFs deliver.
Note: Market data to March 26; annualized total returns to Feb. 28
Tickers mentioned in this story
Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 01/03/24 2:13pm EST.
BMO Canadian Dividend ETF
BMO Monthly Income ETF
Horizons Active CDN Dividend ETF
Invesco CDN Div Idx ETF
Ishares CDN Fin Mthly Income ETF
Ishares S&P TSX CDN Dividend ETF
Ishares Diversified Monthly Income ETF
Ishares Canadian Select Div Index ETF
Ishares S&P TSX Comp High Div Index ETF
RBC Quant CDN Dividend Leaders ETF
Vanguard FTSE CDN High Div Yld Index ETF