Buy this ETF for growth and income

Here’s an ETF that invests in companies that not only pay dividends, but raise them year after year. This gives you capital appreciation and a growing stream of income.


This ETF of Canadian dividend aristocrats yields about four percent and its 10-year CAGR is 8.3 per cent.

iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (TSX—CDZ) is an exchange-traded fund that tries to match, before fees and expenses, the performance of the S&P/TSX Canadian Dividend Aristocrats Index.

This ETF gives you exposure to a portfolio of high-quality Canadian dividend-paying stocks. Its underlying index screens for large, established Canadian companies that have increased ordinary cash dividends every year for at least five consecutive years. It also provides you with regular monthly income.

10-year CAGR is 8.3 per cent

The fund has performed well compared with similar managed offerings and the overall market. Over the past 10 years, its compound annual growth rate is 8.3 per cent. That’s a top-quartile performance in the Canadian dividend and income equity fund category. The average fund in the category delivered an annualized 7.1 per cent over the same period, while the S&P/TSX Composite Total Return Index rose 6.9 per cent.

The ETF has also performed relatively well over shorter time frames. Over the past three- and five-year periods it was a second-quartile performer in its category. Over the past year, its ranks in the top quartile.

Volatility has been slightly above the category average but slightly below that of the market. The ETF’s three-year standard deviation is 8.75, compared with 8.54 for the category and 9.11 for the S&P/TSX Composite.

The fund’s top holdings include Exchange Income Corp. (industrials), 3.6 per cent; TransAlta Renewables (utilities), 3.6 per cent; Alaris Royalty (financials), 3.3 per cent; Inter Pipeline Ltd. (energy), 2.8 per cent; Keyera Corp. (energy), 2.6 per cent; Cineplex Inc. (communication), 2.4 per cent; Capital Power (utilities), 2.3 per cent; Enbridge Inc. (energy), 2.2 per cent; Choice Properties Real Estate Investment Trust, 2.1 per cent; and TC Energy Corp., 2.1 per cent.

The ETF’s largest holding, Exchange Income Corporation, is a diversified acquisition-oriented company, focused in two sectors: aerospace and aviation services and equipment, and manufacturing. The company has recently reported record quarterly revenue and earnings per share. The stock yields 5.1 per cent.

Fund is well diversified by industry sector

The fund is fairly well diversified by industry sector. Its industry breakdown is as follows: financials, 23.3 per cent; utilities, 17.5 per cent; energy, 17.1 per cent; industrials, 12.0 per cent; real estate, 10.1 per cent; communication, 7.1 per cent; consumer staples, 4.9 per cent; materials, 3.4 per cent; consumer discretionary, 3.1 per cent; and technology, 1.1 per cent.

The ETF pays a monthly distribution of $0.09 a share. That amounts to an annual yield of 3.8 per cent on its net asset value. Its 12-month trailing yield is closer to four per cent.

Distributions have grown over the years. In 2018, the fund’s dividend payments were just over 30-per-cent higher than those paid out in 2013. So the ETF offers the capacity for higher distributions over time.

The ETF’s management expense ratio is 0.66 per cent.

iShares S&P/TSX Canadian Dividend Aristocrats Index ETF is a buy for growth and income if you can tolerate medium investment risk.

This is an edited version of an article that was originally published for subscribers in the January 17, 2020, issue of Money Reporter. You can profit from the award-winning advice subscribers receive regularly in Money Reporter.

Money Reporter, MPL Communications Inc.
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