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investor clinic

What do you think of the iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (CDZ)? It seems to follow a similar approach to your model Yield Hog Dividend Growth Portfolio.

The idea behind CDZ is a good one: The exchange-traded fund invests in stocks that have raised their dividends for at least five consecutive years, which means it will generally include companies whose revenues and earnings are also growing steadily.

There’s some wiggle room in the methodology, however: According to S&P Dow Jones Indices, which manages the index that CDZ tracks, constituents “can maintain the same dividend for a maximum of two consecutive years within that five year period.”

That’s not a deal-breaker for me. However, one concern I have is that CDZ weights stocks based on their dividend yields. This means stocks with the highest yields account for the biggest positions in the fund. In the past, this has led to situations where troubled companies with unsustainably high dividend yields – such as Aimia and Corus Entertainment Inc. – have been the ETF’s top holdings, only to cut their dividends.

The weighting methodology – along with CDZ’s relatively high management expense ratio of 0.66 per cent – may help to explain why CDZ’s five-year annualized total return of 5.35 per cent (through Dec. 31) lagged the S&P/TSX Composite Index’s total return of 6.28 per cent. To be fair, several other Canadian dividend ETFs also trailed the S&P/TSX. Those that beat the index included the Horizons Active Canadian Dividend ETF (HAL), with a five-year annualized total return of 7.5 per cent, and the Invesco Canadian Dividend Index ETF (PDC), which returned 6.44 per cent.

Remember that these are backward-looking performance numbers, and it’s possible that ETFs that lagged the pack over the past five years could turn out to be winners over the next five years. Rather than pick a single ETF, you may wish to diversify by spreading your money across a few different funds. Just as important as the ETFs you choose is your behaviour as an investor. If you buy and hold through good times and bad, reinvest your dividends and resist the urge to trade, you’ll very likely be pleased with your results over the long run.

I am looking for an ETF that invests in consumer staples stocks and has a reasonable dividend yield. What do you suggest?

For Canadian stocks, there’s the iShares S&P/TSX Capped Consumer Staples Index ETF (XST). But I’m guessing the trailing 12-month yield of 0.7 per cent doesn’t meet your definition of “reasonable." ETFs that focus on U.S. and international consumer staples stocks generally offer higher yields – typically between 2 and 3 per cent. One example is the U.S.-listed Vanguard Consumer Staples ETF (VDC), which has an attractive MER of 0.1 per cent and yields about 2.4 per cent. VDC’s top holdings include Procter & Gamble Co., Coca-Cola Co., PepsiCo Inc., Walmart Inc. and Colgate-Palmolive Co. Presumably, these companies should hold up better than other sectors in an economic downturn because they sell household goods, personal care items, food and other products that people need in good times and bad.

I’ve held the iShares S&P/TSX Capped REIT Index ETF (XRE) for some time. I’m trying to understand why the monthly distributions were lower for the first 11 months of 2019 (compared with 2018), and then there was a big cash payment at the end of 2019. Can you explain?

Through the first 11 months of 2019, XRE distributed 72.4 cents per unit in cash, which was about 3 per cent lower than the 74.7 cents it distributed in the comparable period of 2018. The drop likely reflected the fact that several REITs in XRE cut their distributions in 2018, including Artis REIT, Cominar REIT and Boardwalk REIT.

In December, XRE declared an unusually large cash distribution of about 22.78 cents per unit. Normally, some or all of such year-end distributions is reinvested in the fund, but in this case the entire amount was paid in cash. The payment reflected the takeover by Blackstone Group Inc. of Dream Global REIT, one of XRE’s constituents, said Steven Leong, head of product at iShares Canada.

The distribution was paid in cash because “the tax treatment [of the transaction] was not clarified ... until after tax year-end,” Mr. Leong said in an e-mail. How the distribution will be treated for tax purposes “will be communicated at the end of February, as per normal,” he said.

E-mail your questions to I’m not able to respond personally to every e-mail but I choose certain questions to answer in my column.