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An often overlooked benefit of investing in the Canadian stock market with index-tracking exchange-traded funds is a pretty good dividend yield.

Canadian stock market indexes are dominated by dividend-paying blue chips. This explains why the indexes tracked by major Canadian equity ETFs offer dividend yields today that are very close to 3 per cent. Two quick examples: The iShares Core S&P/TSX Capped Composite Index ETF (XIC) has a trailing 12-month yield of 2.9 per cent, while the Vanguard FTSE Canada All Cap Index ETF (VCN) has a 12-month trailing yield of 2.8 per cent. Just for context, five-year Government of Canada bonds yield about 1.5 per cent these days, while five-year guaranteed investment certificates top out around 2.8 per cent.

Both XIC and VCN distribute dividend income to investors on a quarterly basis, so they’re not as suitable as monthly-pay dividend ETFs for the income-focused investor. But if your investing goal is to build long-term wealth through total returns based on both dividends and share price gains, a mainstream Canadian equity ETF delivers.

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You also get dividend growth with these ETFs. XIC has increased the amount of eligible dividends (they get favourable tax treatment through the dividend tax credit in non-registered accounts) almost every year since inception. The total amount of eligible dividends per unit paid by XIC was 60.7 cents in 2016, 62 cents in 2017 and 69.5 cents in 2018.

Don’t expect the same dividend flow from U.S. equity ETFs. The Vanguard S&P 500 Index ETF (VFV) has a 12-month trailing dividend yield of just 1.7 per cent. The BMO MSCI EAFE Index ETF (ZEA) has a yield around 2.8 per cent, which tells you that International equity ETF yields are close to the Canadian level.

Enthusiasm for dividend investing often leads investors to stocks and funds that are heavily focused on particular sectors like financials, utilities, pipelines and telecom stocks. But the examples of XIC and VCN show you can get a decent dividend yield and much superior diversification.

-- Rob Carrick, Globe and Mail market strategist

This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.

Stocks to ponder

Altus Group Ltd. This is the best performing stock the S&P/TSX composite real estate sector index with a remarkable price return of 56 per cent year-to-date. Last month, the stock appeared on the positive breakouts list (stocks with positive momentum) with the share price closing at a record high. The share price subsequently pulled back over 10 per cent. The share price has since stabilized and is now rising ahead of the company’s release of its quarterly earnings results. Jennifer Dowty profiles the stock.

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Lifeway Foods Inc. This company makes probiotic products and its origins started off like a fairly tale. More lately, the company has been more like a nightmare - especially for its investors. The Contra Guys, however, still see potential in the stock.

The Rundown

Why stocks are inching to record highs despite a ‘world gone mad’

“The world has gone mad,” billionaire Ray Dalio thundered this week. But don’t try telling that to stock markets. For now, anyway, they like things just fine. The contrast between global share prices – now hovering around record highs – and Mr. Dalio’s deep pessimism sums up the conflicted state of play in today’s financial markets. While stocks have been staging an impressive rebound this year, Mr. Dalio, founder of Bridgewater Associates LP, one of the world’s largest hedge funds, has been arguing the good times can’t last. What are investors to make of all this? Ian McGugan shares his thoughts.

As Buffett seeks big acquisition, Berkshire trails S&P

Three-quarters of the way through 2019, Warren Buffett’s conglomerate Berkshire Hathaway Inc. is trailing the renowned investor’s favourite benchmark, the S&P 500 – as it’s done over the past decade. Finding that next big acquisition has been hard to come by for Mr. Buffett, one reason he says Berkshire hasn’t kept up with the overall market. Mr. Buffett says low interest rates have made it easier for other investors to borrow money and bid up the prices of acquisition targets. Has the time come for investors to abandon Berkshire? Josh Fund of the Associated Press has this analysis.

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The TSX is a prime candidate for further gains

The last several months have been dominated by fragile market conditions as nervous investors digested a flurry of doomsday, trade-related headlines that have sparked fears of a pronounced global slowdown. However, rest assured that there’s reason for optimism and further equity upside from here, even after the latest market upswing, says Candice Bangsund, portfolio manager with Fiera Capital Corp.

Others (for subscribers)

The week’s most oversold and overbought stocks on the TSX

Thursday’s analyst upgrades and downgrades

Friday’s analyst upgrades and downgrades

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Canada’s yield advantage seen underpinning loonie over coming year

Ten quality TSX stocks with earnings growth ahead of their peers

Twelve financial services stocks back in the spotlight after the market rally

Others (for everyone)

U.S. small-cap shares poised to benefit from shift to value

Investors looking beyond U.S. equity market for 2020

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Ask Globe Investor

Do you have a question for Globe Investor? Send it our way via this form. Questions and answers will be edited for length.

What’s up in the days ahead

Our market strategist Scott Barlow just bought a stock in a sector he’s feeling particularly bullish about. He’ll reveal what he’s up to next week.

Click here to see the Globe Investor earnings and economic news calendar.

More Globe Investor coverage

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For more Globe Investor stories, follow us on Twitter @globeinvestor

Click here share your view of our newsletter and give us your suggestions.

You may also be interested in our Market Update or Carrick on Money newsletters. Explore them on our newsletter signup page.

Compiled by Globe Investor Staff

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