Best Canadian ETFs for an income portfolio

The Money Reporter, written for “investors whose interest is more interest”, publishes a list of the 13 best exchange traded funds for an income-oriented portfolio. Using this list of 13 ETFs in conjunction with the other securities recommended in Money Reporter, income-oriented investors can build a portfolio that suits their investment objectives and temperament.

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 to ensure that it’s well diversified. With this in mind, we’ve produced a special report on ETFs, which includes a list of what we think are the best ETFs for an income portfolio.

Our list of ETFs includes offerings that provide exposure to broad market indexes such as the Vanguard Total Market Index (CAD-hedged) (TSX─VUS) which tracks the CSRP U.S. Total Stock Market Index; or the Vanguard FTSE Global All Cap ex Canada (TSX─VXC) which tracks the FTSE Global All Cap ex Canada China A Inclusion Index. Use ETFs like these to ensure that you have exposure to a wide array of industries and geographical areas. They can round out a portfolio of income stocks that is largely focused on a few industry sectors in the Canadian market.

At the same time, our list of ETFs includes more focused income offerings. These ETFs can come in handy if you’re looking for exposure to specific asset classes or areas of the market and you either don’t want to buy a number of securities in these areas or you don’t have enough funds to diversify in these areas. For example, if you have enough money to buy just one preferred stock, why not consider an ETF that provides you exposure to a broad array of preferred share offerings? You’ll certainly cut your risk by investing in such an ETF.

Some thoughts on our ETF list

Our ETF selections include both equities and fixed-income offerings. And the equity offerings provide exposure not only to Canadian stocks, but U.S. and international ones too. Our recommended Canadian equity ETFs include iShares S&P/TSX 60 Index (TSX─XIU), which tracks the S&P/TSX 60 Index and gives you diversified exposure to Canadian large-cap stocks. We consider it a candidate for a core portfolio holding. Two of our Canadian equity ETFs focus on dividend-paying common shares, and one gives you exposure to Canadian preferred shares.

Our U.S. ETFs include a broad-market offering, one that focuses on companies that raise their dividends regularly, and one that invests in high-dividend stocks. Note that our U.S. ETFs all hedge against fluctuations in the Canadian dollar against the U.S. greenback. We recommend these ETFs because we feel the loonie is undervalued compared to the U.S. dollar.

Our international ETFs include one that provides exposure to global markets excluding Canada and China’s risky A shares, and another that provides a monthly dividend stream.

Aside from all these equity ETFs, we recommend a number of bond ETFs. As we’ve said before, we’re no fans of bond mutual funds, as you give up control of your cash needs with these offerings and their fees are too high. But bond ETFs have much lower fees. So if you don’t mind giving up control, these ETFs may have a role in your portfolio.

Invest the aristocratic way

Many of the exchange traded funds we recommend are attractive income-oriented offerings including iShares S&P/TSX Canadian Dividend Aristocrats (TSX─CDZ). It tries to match the return of the S&P/TSX Canadian Dividend Aristocrats Index. To qualify for inclusion in this index, securities must meet the following criteria: they must be common stock or income trusts listed on the Toronto Stock Exchange and the S&P Canada Broad Market Index; they must have increased ordinary cash dividends for at least five consecutive years; and they must have a minimum market capitalization of $300 million.

This ETF’s most recent distribution yields an annualized 3.7 per cent. Its expense ratio is 0.66 per cent.

Stocks that consistently raise their dividends over time are excellent candidates for conservative investors seeking a combination of growth and income. Rising dividends are commonly supported by rising profits, which, in turn, support rising share prices.

iShares S&P/TSX Canadian Dividend Aristocrats Index ETF is a buy for growth and income.


Money Reporter, MPL Communications Inc.
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846

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