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A question to ask if you’re in the market for a Canadian dividend ETF: Would you be better off with a fund that simply tracks the S&P/TSX Composite Index?

The latest installment of the Globe and Mail 2022 ETF Buyer’s Guide can help you decide. It shows you some of the key metrics for comparing an exchange-traded fund tracking Canada’s benchmark stock index against funds holding strictly dividend payers.

Canadian equity funds are the cheapest of the cheap, with management expense ratios as low as 0.04 to 0.06 per cent. The cost of owning dividend ETFs seems to exploit the unshakeable belief investors have in dividend investing, which is to say these funds are far more expensive to own. The average MER of funds presented here is 0.5 per cent.

One reason to own a dividend ETF is for monthly income – the guide highlights the substantial yield differences between funds. Dividend stocks are seen as being more stable than the broader market, but the funds listed here are both less and more volatile than the index. As for returns, the past year has been particularly good for dividend stocks.

The guide also highlights the diversification problem with some dividend funds, specifically their dominant weightings in financials and, in some cases, energy. The S&P/TSX Composite Index is tilted to these sectors as well, but not to the same extent as some dividend funds.

The 2022 edition of the ETF Buyer’s Guide wraps up later in April by looking at asset allocation funds, which offer a well-diversified portfolio in a single ETF. The guide has already covered Canadian, U.S. and global/international equity funds, as well as bond funds.

Here’s a discussion of terms used in this edition of the ETF Buyer’s Guide:

Assets: Shown to give you a sense of how interested other investors are in a fund.

Management expense ratio (MER): 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 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: Based on the recent pattern of monthly payouts and the latest share price; may reflect payments of dividends 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.

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 with a benchmark stock index, which always has a beta of one. A lower beta means less volatility on both the up and down side.

For comparative purposes, the S&P/TSX Composite total return was 20.2% (1-yr), 14.2% (3-yr), 10.3% (5-yr). Top 3 weightings were Financials: 31%, Energy: 17%, Materials: 14%. 3-yr Beta was 1. Dividend yield was 2.5%.

Notes: Market data as of April 12, 2022. Returns to March 31, 2022.

Source: Rob Carrick; ETF company websites;;; TMX Money

Click here to download an Excel version of the guide.

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