Top Canadian Dividend ETFs (2020) – Why we don’t own them

A number of readers have inquired how I feel about dividend ETFs and what are the top Canadian dividend ETFs available in the market today. As of today, our dividend portfolio consists of 56 individual dividend stocks and 2 index ETFs. While we deploy a hybrid strategy by investing in both dividend stocks and index ETFs, you may have noticed that we don’t own any Canadian dividend ETFs. We only hold broad market index ETFs like VCN and XAW.

Isn’t it better to hold dividend ETFs for far better diversification than hold individual dividend stocks? Why do I end up deciding to hold individual dividend stocks rather than relying on these Canadian dividend ETFs?

Isn’t it easier to simply hold dividend ETFs than spend time on researching and purchasing individual dividend stocks? Wouldn’t it be cheaper in the low run when you consider all the trading commissions?

Before we dive into these questions about holding dividend ETFs vs. holding individual dividend stocks. Let’s take a look at some of the top Canadian dividend ETFs available as of 2020.

Top Canadian Dividend ETFs

VDY – Vanguard Canadian High Dividend Yield Index ETF

Vanguard FTSE Canadian High Dividend Yield Index ETF seeks to track, to the extend reasonably possible and before fees and expense, the performance of a broad Canadian equity index that measures the investment return of common stocks of Canadian companies that are characterized by high dividend yield. VDY tracks the FTSE Canadian High Dividend Yield Index. The fund invests primarily in common stocks of Canadian companies that pay dividends.

  • MER: 0.22%
  • Yield: 5.52%
  • Distribution: monthly
  • Holdings: 51
  • Net Assets: $548.6M
  • Top 10 Holdings: Royal Bank (RY.TO), TD (TD.TO), Enbridge (ENB.TO), Bank of Nova Scotia (BNS.TO), TC Energy Corp (TRP.TO), Bank of Montreal (BMO.TO), BCE (BCE.TO), CIBC (CM.TO), Manulife (MFC.TO), Suncor (SU.TO), Sun Life Financial (SLF.TO), Telus (T.TO), Canadian Natural Resources (CNQ.TO), Nutrient (NTR.TO), National Bank (NA.TO)
  • Holding Breakdown: 56.7% Financials, 27.1% Oil & Gas, 9.4% Telecommunications, 3.1% Basic Materials, 2.9% Utilities, 0.5% Industrials, 0.3% Consumer Services.
Top Canadian dividend ETFs - VDY

ZDV – BMO Canadian Dividend ETF

BMO Canadian Dividend ETF was designed to provide exposure to a yield weighted portfolio of Canadian dividend paying stocks. The Fund utilizes a rules based methodology that considers the three year dividend growth rate, yield, and payout ratio to invest in Canadian equities. The portfolio is rebalanced in June and reconstituted in December.

  • MER: 0.38%
  • Yield: 5.43%
  • Distribution: monthly
  • Holdings: 52 holdings
  • Net Assets: $452.38M
  • Top 10 Holdings: Sun Life Financial (SLF.TO), Power Corp (POW.TO), Manulife Financial (MFC.TO), CIBC (CM.TO), TD (TD.TO), Bank of Nova Scotia (BNS.TO), Nutrien (NTR.TO), Bank of Montreal (BMO.TO), Royal Bank (RY.TO), BCE (BCE.TO)
  • Holding Breakdown: 34.96% Financials, 16.53% Utilities, 13.89% Energy, 11.48% Consumer Services, 7.36% Industrials, 6.68% Consumer Discretionary, 2.91% Materials, 2.54% Consumer Staples, 2.12% Real Estate, 0.84% IT.
Top Canadian dividend ETFs - ZDV

XDV – iShares Canadian Select Dividend Index ETF

iShares Canadian Select Dividend Index ETF seeks to provide long-term capital growth by replicating the performance of the Dow Jones Canada Select Dividend Index, net of expenses. Diversified exposure to 30 of the highest yielding Canadian companies in the Dow Jones Canada Total Market Index. The holdings in XDV are selected based on methodology analysis by dividend growth, yield, and payout ratio.

  • MER: 0.55%
  • Yield: 4.51%
  • Distribution: monthly
  • Holdings: 30
  • Net Assets: $1,195.18M
  • Top 10 Holdings: CIBC (CM.TO), Canadian Tire (CTC.A), Royal Bank (RY.TO), Bank of Montreal (BMO.TO), Bank of Nova Scotia (BNS.TO), TC Energy Corp (TRP.TO), BCE (BCE.TO), TD (TD.TO), National Bank (NA.TO), Emera (EMA.TO)
  • Holding Breakdown: 58.8% Financials, 11.66% Utilities, 10.69% Communication, 6.72% Consumer Discretionary, 6.11% Energy, 4.02% Industrials, 1.69% Materials, 0.32% Cash.
Top Canadian dividend ETFs - XDV
Top Canadian dividend ETFs - XDV

XEI – iShares Core S&P/TSX Composite High Dividend Index ETF

iShares Core S&P/TSX composite High Dividend Index ETF seeks long-term capital growth by replicating the performance of the S&P/TSX Composite High Dividend Index, net of expenses. XEI is designed to be a long-term foundational holding for Canadian dividend investors.

  • MER: 0.22%
  • Yield: 5.11%
  • Distribution: monthly
  • Holdings: 75
  • Net Assets: $634,33M
  • Top 10 Holdings: TC Energy Corp (TRP.TO), Canadian Natural Resources (CNQ.TO), Enbridge (ENB.TO), Royal Bank (RY.TO), Telus (T.TO), Pembina Pipeline (PPL.TO), TD (TD.TO), Bank of Nova Scotia (BNS.TO), BCE (BCE.TO), Nutrien (NTR.TO)
  • Holding Breakdown: 31.08% Energy, 29.43% Financials, 13.64% Utilities, 11.34% Communication, 7.2% Real Estate, 4.88% Materials, 1.43% Industrials, 0.46% Health Care, 0.31% Cash, 0.23% Consumer Staples
Top Canadian dividend ETFs - XEI
Top Canadian dividend ETFs - XEI

CDZ – iShares S&P/TSX Canadian Dividend Aristocrats Index ETF

iShares S&P/TSX Canadian Dividend Aristocrats seeks to replicate the S&P/TSX Canadian Dividend Aristocrats Index, less fees and expenses. Diversified exposure to a portfolio of high quality Canadian dividend paying companies. The underlying index screens for large, established Canadian companies that increased ordinary cash dividends every year for at least five consecutive years.

  • MER: 0.66%
  • Yield: 3.68%
  • Distribution: monthly
  • Holdings: 81
  • Net Assets: $775,55M
  • Top 10 Holdings: TransAlta Renewable (RNW.TO), Fiera Capital Corp (FSZ.TO), TransContinential (TCL.A), Enbridge (ENB.TO), North West Company (NWC.TO), Innergrex Renewable (INE.TO), Granite REIT (GRT.UN), BCE (BCE.TO), CIBC (CM.TO), Capital Power Corp (CPX.TO)
  • Holding Breakdown:  23.70% Financials, 15.79% Utilities, 13.51% Industrials, 12.51% Real Estate, 9.84% Energy, 8.49% Consumer Staples, 6.18% Communication, 4.59% Materials, 2.54% Consumer Discretionary, 1.32% Healthcare
Top Canadian dividend ETFs - CDZ
Top Canadian dividend ETFs - CDZ

XIU – iShares S&P/TSX 60 Index ETF

iShares S&P/TSX 60 Index ETF seeks long-term capital growth by replicating the performance of the S&P/TSX 60 Index, net of expenses. Exposure to large, established Canadian companies. XIU is the largest and most liquid ETF in Canada and started trading in 1990, making it the first ETF in the world.

  • MER: 0.18%
  • Yield: 3.29%
  • Distribution: quarterly
  • Holdings: 60
  • Net Assets: $9,730.53M
  • Top 10 Holdings: Shopify (SHOP.TO), Royal Bank (RY.TO), TD (TD.TO), Canadian National Railway (CNR.TO), Enbridge (ENB.TO), Bank of Nova Scotia (BNS.TO), Barrick Gold (ABX.TO), Brookfield Asset Management (BAM.A), TC Energy Corp (TRP.TO), Canadian Pacific Railway (CP.TO)
  • Holing Breakdown: 31.15% Financials, 13.95% Energy, 13.35% Materials, 11.38% IT, 10.97% Industrials, 6.05% Communication, 4.37% Consumer Staples, 3.62% Consumer Discretionary, 3.54% Utilities, 0.75% Real Estate.
Top Canadian Dividend ETFs - XIU
Top Canadian Dividend ETFs - XIU

DXM – First Asset Morningstar Canada Dividend Target 30 Index ETF

CI First Asset Morningstar Canada Dividend Target 30 Index ETF offers investors a way to gain exposure to the most fundamentally sound dividend paying stocks in Canada by replicating, to the extent possible, the Morningstar Canada Target Dividend Index. DXM invests in equity securities of the largest and most liquid Canadian stocks based upon Morningstar’s proprietary research. The fund is designed to provide diversified exposure to Canadian dividend paying companies.

  • MER: 0.60%
  • Yield: 4.30%
  • Distribution: quarterly
  • Holdings: 30
  • Net Assets: $11,178,98M
  • Top 10 Holdings: Gibson Energy (GEI.TO), AltaGas (ALA.TO), CI Financial (CIX.TO), Northland Power (NPI.TO), Sun Life Financial (SLF.TO), Great West LifeCo (GWO.TO), Quebecor Inc (QBR.B), Keyera (KEY.TO), TC Energy Corp (TRP.TO), Shaw Communications (SJR.B)
  • Holding Breakdown: 26.92% Financials, 24.22% Utilities, 20.03% Telecommunication, 16.45% Energy, 9.11% Real Estate, 3.27% Industrials.
Top Canadian Dividend ETFs - DXM
Top Canadian Dividend ETFs - DXM

PDC – Invesco Canadian Dividend Index ETF

Invesco Canadian Dividend Index ETF seeks to replicate, to the extent reasonably possible and before fees and expenses, the performance of the NASDAQ Select Canadian Dividend Index, or any successor thereto. This Invesco ETF invests primarily in Canadian equity securities with 95% exposure to Canada and 5% to other countries.

  • MER: 0.55%
  • Yield: 5.78%
  • Distribution: monthly
  • Holdings: 41 holdings
  • Net Assets: $633.38M
  • Top 10 Holdings: TD (TD.TO), Bank of Nova Scotia (BNS.TO), TC Energy Corp (TRP.TO), BCE (BCE.TO), Enbridge (ENB.TO), Power Corp (POW.TO), Bank of Montreal (BMO.TO), CIBC (CM.TO), Brookfield Infrastrcture Partners (BIP.U), Telus (T.TO)
  • Holding Breakdown: 32.68% Financials, 21.80% Energy, 20.08% Utilities, 15% Telecommunication, 8.08% Real Estate, 0.68% Industrials, 0.68% Health Care, 0.54% MAterials, 0.45% Consumer Staples
Top Canadian Dividend ETFs - PDC
Top Canadian Dividend ETFs - PDC

XDIV – iShares Core MSCI Canadian Quality Dividend Index ETF

iShare Core MSCI Canadian Quality Dividend Index ETF seeks to provide long term capital growth by replicating the performance of the MSCI Canadian High Dividend Yield 10% Security Capped Index, net of expenses. This ETF selects securities with strong overall financials, including solid balance sheets and less volatile earnings. XDIV is designed to be a long term core holding for Canadian dividend investors.

  • MER: 0.11%
  • Yield: 5.15%
  • Distribution: monthly
  • Holdings: 20 holdings
  • Net Assets: $239.34M
  • Top 10 Holdings: Manulife Financial (MFC.TO), Sun Life Financial (SLF.TO), CIBC (CM.TO), Royal Bank (RY.TO), Bank of Nova Scotia (BNS.TO), TC Energy Corp (TRP.TO), Fortis (FTS.TO), Pembina Pipeline (PPL.TO), Power Corp (POW.TO), Shaw Communications (SJR.B)
  • Holding Breakdown: 56.55% Financials, 17.88% Energy, 15.60% Utilities, 9.67% Communication, 0.31% Cash.
Top Canadian Dividend ETF - XDIV
Top Canadian Dividend ETF - XDIV

Top Canadian Dividend ETFs – Sector Diversification

Here the sector diversification summary of the top Canadian dividend ETFs. Because the S&P/TSX Composite Index has a large exposure to the financial and energy sector, it shouldn’t come as a surprise that these Canadian dividend ETFs also have a large exposure to these two sectors.

 CDZDXMPDCVDYXDIVXDVXEIXIUZDV
Consumers11.0300.450.306.720.237.9920.7
Energy9.8416.4521.827.117.886.1131.0813.9513.89
Financials23.726.9232.6856.756.5558.829.4331.1534.96
Health Care1.3200.680000.4600
Industrials13.513.270.68004.021.4310.977.36
Materials4.5900.543.101.694.8813.352.91
Real Estate12.519.118.080007.20.752.12
Telecom & IT6.1820.0315.09.49.6710.6911.3417.430.84
Utilities15.7924.2220.082.915.6011.6613.643.5416.53
Cash00000.310.320.3100

Top Canadian Dividend ETFs – Additional Analysis

To make it easier to compare the different dividend ETFs, I have put together a table for additional analysis. It’s interesting to see that all nine dividend ETFs have different top holding with very different percentage exposure. XDIV is the newest dividend ETF out of all nine listed below with an inception date of June 7, 2017.

 Yield5 Year ReturnMERDistribution FrequencyNet AssetsHoldingsTop HoldingTop Holding %Inception Date
CDZ3.683.040.66Monthly775.55M81TrasAtla Renewabl (RNW.TO)2.5709-08-2006
DXM4.32.680.60Quarterly11,178.98M30Gibson Energy (GEI.TO)3.6402-02-2012
PDC5.783.440.55Monthly633.38M41TD (TD.TO)8.0706-16-2011
VDY5.523.870.22Monthly548.6M51Royal Bank (RY.TO)14.6001-011-2012
XDIV5.150.37 (3 Yrs)0.11Monthly239.34M20Manulife Financial (MFC.TO)9.9406-07-2017
XDV4.513.040.55Monthly1,195.18M30CIBC (CM.TO)8.312-19-2005
XEI5.112.420.22Monthly634.33M75TC Energy Corp (TRP.TO)5.2104-12-2011
XIU3.295.680.18Quarterly9,730.53M60Shopify (SHOP.TO)7.7409-28-1999
ZDV5.432.330.38Monthly452.38M52Sun Life Financial (SLF.TO)3.3210-21-2011

Some thoughts on Canadian Dividend ETFs

  • All of the listed Canadian dividend ETFs have different stock selection criteria, hence they hold a different number of stocks with slightly different top 10 holdings.
  • The five year returns for these top Canadian dividend ETFs are similar. They vary by around 1% or so. XIU is the exception with a five year return of 5.68%. This shouldn’t come as a surprise since XIU’s tracks S&P/TSX60 so some of these stocks, like Shoplify, do not pay dividends.
  • VDY and XIU have similar top 10 holdings. However, VDY’s top 10 holdings make up 70% of the entire fund assets. On the other hand, XIU’s top 10 holdings make up about 50% of the entire fund assets. VDY’s performance will be closely tied to the top 10 holdings.
  • CDZ, DXM, PDC, and XDV relatively high MER compared to the rest of the dividend ETFs.
  • I would be a bit concerned holding CDZ and dubbing it as the top Canadian dividend ETF. Why? Because CDZ has some questionable top 10 holdings. CDZ’s top 10 holdings are drastically different than most of the other Canadian dividend ETFs I have compared in this article.
  • Interestingly, none of these Canadian dividend ETFs hold a large percentage of Health Care stocks. CDZ is the only ETF that holds the largest percentage of stocks in Health Care at 1.32%.
  • VDY, XDIV, and XDV hold over 50% stocks in the financial sector. This is a bit surprising given that the S&P/TSX Composite Index only has about 28% exposure in the financial sector. In other words, VDY, XDIV, and XDV hold many of the Canadian banks and insurance stocks. Dividends from Canadian banks are generally safe. But as interest rates stay quite low, Canadian banks and Canadian banks and insurance companies may face a tougher environment to increase their earnings. So it is possible that VDY, XDIV, and XDV to underperform compared to the rest of the dividend ETFs.
  • If you are looking to create a spreadsheet to track all your ETF investments, take a look at my Google Spreadsheet template for ETFs.
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Which dividend ETFs would I purchase?

If I were to purchase one of these top Canadian dividend ETFs, which one would I purchase?

That’s a tough question to answer. After evaluating different parameters I would purchase between XEI or XIU based on the following reasons.

  • Low MER for both XEI and XIU
  • XEI has one of the highest yields and holds 75 securities. Although the top 10 holdings are dominated by banks, energy, pipeline, and telecommunications and take up over 45% of the fund assets, holding 75 securities does provide quite a bit of diversification. If your goal is yield, then XEI may be a good choice.
  • XIU has the lowest MER with the lowest yield of all 7 top Canadian dividend ETFs. But it also has the highest five year return out of all the dividend ETFs compared. XIU does track closely with the TSX composite index. Therefore, if you want an ETF that tracks the Canadian market while focuses on both dividend income and total return, XIU may be one of the best Canadian dividend ETFs to hold in your portfolio. 

Note: I am not an investment professional and I am not a financial advisor. This blog post represents my opinion and not an advice/recommendation. Therefore, please make your own investment decisions at your risk.

Why don’t we own any of the top Canadian dividend ETFs?

Dividend ETFs offer many benefits. Isn’t it easier to just purchase dividend ETFs instead of purchasing individual dividend stocks? Why don’t we own any of the top Canadian dividend ETFs that I just mentioned above? Well, here are my reasons why we don’t own Canadian dividend ETFs in our dividend portfolio.

  • All of the dividend ETFs have different selection criteria. This results in very different dividend stock selections. Take VDY for example, if we own only one dividend ETF, do we really want to hold 14% of our portfolio in Royal Bank? Similarly, I have no desire of owning the likes of Gibson Energy, Keyera, or Quebecor, so I wouldn’t want to hold an ETF that has these stocks as one of the top 10 holdings.
  • What if I want to have a heavier exposure to consumer staples or other sectors than the dividend ETF has selected? Only CDZ has a high exposure to consumer staples, but I would be paying a much higher MER. It would be easier to simply purchase individual dividend stocks and control my portfolio’s sector weighting myself.
  • With dividend ETFs, it is difficult to estimate the monthly distribution amount. I like to be able to estimate how much dividend income I will receive. This is espeically important when we eventually live off dividends. Having a predictable dividend income provides a peace of mind, I think.
  • I need to pay management fees while holding ETFs. This is much different than owning individual dividend stocks. With individual dividend stocks, I am only paying for the initial commission fees when I make purchases. Say I have a portfolio of $500,000 and I make 50 purchases. With Questrade, each trade costs $4.95, so 50 trades would cost me $247.50 to set up the portfolio. Once the portfolio is set up, I would not touch it. Say I hold XIU with a market value of $500,000. Although Questrade offers free ETF purchases, each year I would be paying 0.18% of management fee, or $900. It’s not a lot of money to pay given a market value of $500,000. But it is $900 more than what I have to pay if I were to hold only individual dividend stocks.
  • Finally, with a portfolio consists of mostly individual dividend stocks, I have control over on whether I want to sell or buy stocks. With a dividend ETF, if a stock falls off the selection criteria, the stock would not be part of the ETF. I have absolutely no say on whether to continue to hold the stock or not. Essentially by owning individual dividend stocks, I am in control of my own portfolio. I get to decide which stock to own and its weighting in my portfolio. I also get to decide whether I would enroll in DRIP or not. Many Canadian dividend paying companies do provide discounts when you are enrolled in DRIP, so I would be taking advantage of cost saving (Note: if you’re DRIPing through a discount broker via synthetic DRIP, check the policy. Not every discount broker will honour the DRIPing discount).
  • I like having controls, so I prefer owning like the Top 10 Canadian Dividend Stocks. Owning individual stocks gives me more control and allows for more predictable dividend income.

Final thoughts

Dividend ETFs offer far better diversification and still provide solid income distribution. But not all dividend ETFs are created equal. If you decide to own dividend ETFs, definitely do your homework. For Mrs. T and I, we believe owning individual dividend stocks is a better approach than owning dividend ETFs. Owning individual dividend stocks allows us to have more control over our portfolio and save money in the long run. If we want asset and geographical diversification, we can hold index ETFs like VCN or XAW for that purpose.

In other words, as a Canadian dividend investor, I am staying away from Canadian dividend ETFs.

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52 thoughts on “Top Canadian Dividend ETFs (2020) – Why we don’t own them”

  1. Hmm, allow me to go on a bit of a tangent. I don’t focus on dividend stocks and I’ll attempt to explain why. It’s actually one of the biggest fallacies I come across, so maybe I’ll do a post on it later myself. It’s because people, especially in the FIRE community, treat dividends like a free lunch. But it’s all just mental accounting. Trust me I get the thought process. Because I struggle with it myself. It’s hard not to think of things from a cash-flow perspective. But the fact is: selling an equal amount of stock is equivalent to getting a cash dividend. The former is actually preferable from a tax standpoint, and it’s just strictly math. According to Mr. Swedroe (he’s fairly well known in the investment community), “Whether you take the cash dividend or sell the equivalent dollar amount of the company’s stock, at the end of the day, you will have the same amount invested in the stock. It’s just that with the dividend, you own more shares but at a lower price (by the amount of the dividend), while with the self-dividend, you own fewer shares but at a higher price (because no dividend was paid)…dividends mechanically reduce the price of the stock.”

    Reply
    • “Whether you take the cash dividend or sell the equivalent dollar amount of the company’s stock, at the end of the day, you will have the same amount invested in the stock.”

      The major difference is in the future. Those selling their stock for income will have a declining share count with a possibility of running out of stock at some future point in time. Those solely taking the cash dividend will not only maintain the same share count but those shares will also provide them with an increasing cash dividend through dividend growth.

      Reply
    • You can use the same argument for index ETFs though, since you get dividend income/distribution with index ETFs.

      I think Bernie explained it well, the difference is in the future. Many of dividend investors don’t plan to sell their stocks in the future, so as indexers start to sell their stocks while DGIs hold theirs and just use dividend income, the difference begins to compound itself.

      Reply
    • There is a cost to selling shares…there is no cost to collecting dividends…the after-tax benefit of capital gains vs. dividends depends entirely on the sources of your income and your income level.

      If I were an Ontarian receiving $45K dividend income, solely, I would not pay any income tax (actually, I would receive a small refund without having paid any taxes). Not so if this income was from capital gains.

      If I were an Ontarian receiving $100K dividend income, solely, I would be subject to a higher rate of income tax than capital gains and I would probably lose any OAS benefit eligibility, resulting in a much higher level of income taxation than capital gains.

      From your post re: capital gains vs. dividends — ‘The former is actually preferable from a tax standpoint, and it’s strictly math…’: not necessarily so.

      Reply
  2. I’m a retired DGI. I simply don’t buy dividend ETFs because my focus is on reliable dividend income with dividend growth providing inflation protection. ETFs don’t focus on dividend growth. Their distributions are irregular and unpredictable plus the yield is reduced by the MER. They’re better suited for the younger investor. I prefer to craft my own homemade ETF portfolio of close to 3 dozen diversified dividend growth stocks. Its cheaper to run and income is more predictable.

    Reply
    • Very good point about dividend growth. Many ETFs don’t focus on dividend growth so you won’t benefit as much from investing in dividend stocks.

      Reply
  3. Hi Tawcan,

    Really like your blog and your investing style.

    I also prefer to own individual dividend stocks for reasons similar to yours. Indexing sure gets you diversified but by default, gets you a couple bad apples that you possibly would pass on.

    Still think indexing is a good compromise and would suggest it as a great first step to start your DIY career. Rookie DIY investors can use indexing to get acquainted with the account setup and all. It also requires less money to start off. After a while, the next step towards individual stocks investing will be much easier for them.

    Looking forward to reading your wonderful ideas, keep them coming!

    JD

    P.S.: I’m proud of my success DIY investing but I have to admit I’m a little envious of your great success as a blogger. Some pointers sure would help me improve…

    Reply
    • Hi JD,

      Thank you! Index is a good compromise and for someone starting out as a DIY investor, I think index is a great way to get started. Dividend investing is a good compliment with index ETFs.

      When it comes to blogging, focus on telling your story and building your own voice.

      Reply
  4. Disclaimer: the following is my personal opinion and should not be taken as advice.

    Bob, maybe you & some of your posters are right when it comes to self investing in stocks [building your own portfolio’s] rather than trusting a fund manager, it’s all a personal choice, some folks have the financial planner doing it & are OK with that.

    As with any equity/stock market investing there are not too many guarantees, timing is everything as is protecting any downside to try to always get a decent return that is higher than a bank term deposit

    On ETF’s I take a different approach. If I were to invest in pure ETF’s they’d have to be ones that pay a dividend as well as being optionable. I wouldn’t muck around with the so called mickey mouse FET funds (with or without dividends) that swing all over the place or end up buying into the 10 largest ETF’s on the US big boards.

    My choice of ETF would be one of the top 10 beginning with one or two of the following

    I would hedge it & leverage to get me downside protection as well as dividends + option money to yield as close as possible to 10%. Aggressive, well yes – doable yes, but I settle for 5% – 6% or as close to a 10% annual return. That is me.

    http://www.etf.com/SPY

    https://finance.yahoo.com/quote/SPY/options?p=SPY&date=1529020800

    http://www.etf.com/QQQ

    https://finance.yahoo.com/quote/QQQ/options?p=QQQ&date=1521158400

    Reply
    • Hi John,

      When it comes to optional ETFs, that’s a bit beyond many people’s knowledge. It’s a good way to get additional returns that’s for sure.

      Reply
  5. Hey Tawcan,

    I know your broker is Questrade and you’ve mentioned that they provide synthetic DRIPs, but do you know if Questrade offers discounting DRIPs?

    Thanks!

    Reply
  6. With your main goal of growing DGI income, individual stock make more sense. Especially since you have the knowledge, time and willpower to do the follow up.

    It is personal finance, so each person has to make its own analysis.

    Reply
    • Exactly! Some people do index ETFs, some people do DGI, some people do a bit of both, some tab into option trading. It’s your personal preference.

      Reply
  7. Great post Tawcan! I completely agree with your reasoning to not hold those ETF’s. It mirrors some of my own reasons for avoiding many ETFs.

    Why would I want to hold obvious garbage just because it’s in an ETF? I wouldn’t of course!

    Reply
    • Exactly! Why would you want to hold garbage when you can use that money to hold something better? Although when it comes to garbage, that makes good investment too (i.e. Waste Management).

      Reply
  8. on dividend paying ETF’s as well as dividend stocks it’s a personal choice as is it ‘how sophisticated an investor you are’. There some very good dividend paying ETF’s with low EMR’s out there. For those folks that have 10, 25, 50 even a 100 individual stocks in their holding portfolio, it’s like having your own bag of ETF’s, some go up, some go down, some paying different dividend percentages. I don’t have any ETF’s, although I will admit to having bought & sold as a swing trader of ETF’s in the past. Would I buy ETF’s today – well yes, but they’d have to meet my personal investing criteria of ‘minimum 5% dividend, low volatility and have options on them. I have traded 2x & 3x ETF’s as well as their corresponding inverse ETF’s.

    Reply
  9. Most people only look at ETF’s in the short term. Tale a look a a 10 yr chart and I believe you will find:
    1. that most have little or no price growth over the period (US one may be the exception)
    2. that the distributions go up and down over time
    3. that the distributions have little growth over the long term
    With regards to diversification:
    1. yes one owns all, most or many stocks
    2. those include the good, bad and ugly
    3. yes they include the DG stocks but some pay no dividend, cut their dividend or have not increased the dividend
    4. so one is paying the fee (regardless how small) to own many stocks one might want to own
    I’m glad I don’t own any, but its a personal choice.

    Reply
  10. I have a inflation protected pension and live sorta mostly frugally. I have been thinking about cashing my stocks that pay dividends because they don’t drip as I don”t make enough of a dividend to buy one share. I’m thinking of buying a dividend etf that drips. Comments?

    Reply
  11. Thanks for sharing your perspective Bob. I don’t currently hold any ETFs at all.

    I’m looking into preferred shares (specifically WN.PR.A). Thoughts on PR shares as a whole?

    Besos Sarah.

    Reply
  12. The calculation with 500K is correct. Unfortunately, this is the case where you know what to do, how to do it and have a big pile of money. What about this scenarion. Lets assume I have 30K room for TFSA and just starting. I need, to build diversified portfolio. I will buy 10 companies for 3K each. Some people will not use DRIP in order to keep the dividend amount and purchase other companies equity. The second year you have new room 6K and you would like to buy another 5 companies or update the portfolio.. So you get the idea. When a person starts investing every purchase has a fee.

    Reply
    • That’s true, there are fees when you are starting out. However, with mutual funds and index funds, you’ll be paying fees continuously even if you completed building your portfolio.

      Reply
  13. Thanks, Bob! When my portfolio goes over 100K, as I am at the beginning, I will start building my own portfolio. I should also admit that it is difficult to find an ETF that reflects my vision – distribution among different sectors. Most of the ETFs I see currently , heavily rely on finance or US market e.g.

    Reply
  14. i see the reasoning ..

    however : my reasons for going simple are

    my wife or daughter are not savvy and i prefer to leave easy portfolio

    its too easy to tamper with stocks … for most of us anyway

    i prefer to pay a fee for making me forget instead of thinking if i should change etc

    i am the rare beast with no other income . so i can get it all tax free

    and finally i am also going with the new all in one ETF’s

    no rebalancing for me to fret over or not do

    the tax is minimal anyway .. its so time consuming to try and so the perfect tax ..
    the US witholding is not as bad as it sounds for instance .

    simple not perfect is my new financial mantra … i will stay 60/40 in my current retired years .

    Reply
    • Right, if you want to keep it simple, dividend index ETFs may be the solution for you. And the new all in one ETFs certainly look interesting if you just want to have one fund that covers everything.

      Reply
  15. Hi Bob,

    With your other blog on XAW and VXC. I thought you are a proponent and active investor in ETFs but this blog is against ETFs.

    So I am confused now

    Reply
  16. Hi Bob, can you tell me why you said that you like dividend paying stocks because you know more precisely what your income will be a month, is this not the same for the yield on an ETF?

    Reply
      • Thanks for the reply Bob, how about XEI? The’re divident history is very consistent and has been rising since January 2012, .077 to .091. I am retired and looking for the divident income. I do have stocks as well as ETFs that I won’t be touching for a long time but seeing the consistency of XEI gives me some security and the capital seems safe. Thoughts?

        Reply
        • Looking at the XEI info page on iShares, I see the last 3 distributions were $0.091, the 3 before that were $0.082, then the 3 before that were $0.089, then 3 before were $0.089. I suppose XEI’s distributions are more consistent but not sure why it went from $0.089 to $0.082 for 3 quarters.

          Reply
  17. Hi Tawcan,

    Whats your thoughts on XDIV? it has a really low MER and similar to XDV in terms of holdings. Also, what are your thoughts of holding XDIV and VCN (50-50) as part of the Canadian portion of equities mix in a larger portfolio?

    For background, I am trying to decide what investments to select for a non-reg account as part of my Smith Manoevre strategy.

    Would love to hear your thoughts.

    Thanks in advance.

    Reply
    • XDIV holds 25 stocks where XDV holds 30 stocks. They are very similar. VCN holds similar stocks but has a much larger holding.

      It really depends on what your strategy is. Are you doing purely index or hybrid? If hybrid, why not just build your own dividend portfolio rather than relying on ETF?

      Reply
  18. Typically my strategy is indexing, but when I’m reading more about the Smith Manoeuvre, I’m thinking getting higher dividend would be worthwhile with the tax credit. I’ve never picked individual stocks before so am a bit hesitant.

    Reply
  19. Hi! What do you suggest for a newbie investor wanting to build a dividend portfolio, but with little money to invest. Will start at 1k, then able to invest around $500 each month.

    Thank you!

    Reply
  20. Hi Bob: ETFs is a topic I have a strong opinion, but that’s me. When one looks at the extensive review you’ve done on these ETFs, I don’t believe you’d spend much more effort (probably less) in identifying quality DG stocks, whether they be Canadian or US. Why bother owning all the stocks within an ETF, settling for average income and returns, if you can identify quality Income producers and obtain better income and returns?
    I’ve invested to generate Income and ignored Capital appreciation. It’s my belief that if one can invest in stocks which pay and grow your income, capital appreciation will follow.

    Reply
    • Hi Henry:

      “I don’t believe you’d spend much more effort (probably less) in identifying quality DG stocks” – That is absolutely not true. Please don’t put words in my mouth. If you have read my other posts on here, and what I wrote in this article you’ll see why I do not believe in owning dividend ETFs.

      Reply
    • VRIF is an interesting idea as it’s 50% stocks and 50% bonds with 4% distribution. If you cares more about the distribution and do not care too much about price appreciation, this ETF might suite you well. I think more time is needed to see how this ETF will perform though.

      Reply

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