Exchange-traded funds (ETFs) offer you much lower management fees than do mutual funds. Plus, the best ETFs give you well-diversified, tax-efficient equity portfolios. And some are great for income investors seeking a higher yield or dividend growth.
Exchange-traded funds, or ETFs, are among the most talked about investments available these days. We consider them attractive holdings if you want to round out your portfolio with them to ensure that it’s well diversified.
ETFs are also attractive for investors seeking current income and/or the prospect for rising income over time. Here are three income-oriented ETFs we like. Each gives you a different geographic focus, so you can buy one or more of them to ensure your portfolio is well diversified.
Dividends from Canada, . . .
iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (TSX—CDZ) gives you exposure to the Canadian stock market. It tries to match the performance of the S&P/TSX Canadian Aristocrats index, which is made up of large, established Canadian companies that have increased dividends every year for at least five consecutive years.
The ETF has performed very well compared to its managed peers. Over the past 10 years, its compound annual growth rate of 9.7 per cent ranks in the top quartile of the Canadian dividend income and income equity fund category.
The fund, though, is slightly more volatile than the group average. But its expense ratio of 0.66 per cent is well below the category median of 2.16 per cent. This gives it an advantage over its managed peers when it comes to future returns.
The ETF pays a monthly distribution that yields 4.7 per cent annually based on its last distribution.
iShares S&P/TSX Canadian Dividend Aristocrats Index ETF is a buy if you want growth and rising dividend income, and you can tolerate medium investment risk.
. . . dividends from the USA, . . .
Among our US Key stocks we include the units of Vanguard Dividend Appreciation ETF (NYSE—VIG). This exchange traded fund seeks to track the performance of an index that measures the investment return of common stocks of companies that have a record of increasing dividends over time. Currently, that index is the NASDAQ US Dividend Achievers Select Index.
Over the past 10 years, Vanguard Dividend Appreciation has an annualized return of 12.7 per cent. Meanwhile, its volatility has been below average for its peer group.
Also, note that the fund has given up a high yield to pursue stocks that grow their dividends. Based on its most recent holdings, it pays a projected distribution that yields 2.2 per cent.
Its expense ratio is a very low 0.08 per cent. As Vanguard states on its website: this ratio “is 92-per-cent lower than the average expense ratio of funds with similar holdings”.
Vanguard Dividend Appreciation ETF is a buy if you are okay with medium investment risk.
. . . and dividends from around the world
iShares Global Monthly Dividend Index ETF (CAD-Hedged) (TSX—CYH) gives you exposure to dividend-paying companies from around the world. Its underlying index, which is currently the Dow Jones Global Select Dividend Composite Canadian Dollar Hedged Index, screens companies based on several criteria including company size, dividend history, dividend growth and payout ratios.
The fund’s annualized return over the past 10 years is 9.8 per cent. It pays a monthly distribution that would have yielded 4.4 per cent if you had held the fund over the last 12 months.
Its expense ratio is 0.65 per cent.
iShares Global Monthly Dividend Index ETF is a buy for growth and income if you can tolerate low to medium investment risk.
This is an edited version of an article that was originally published for subscribers in the January 25, 2019, issue of The Investment Reporter. You can profit from the award-winning advice subscribers receive regularly in The Investment Reporter.
The Investment Reporter, MPL Communications Inc.
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