Dividend investing is a popular strategy for investors looking for an enhanced income stream from their portfolio. This involves investing in companies that pay out a portion of their earnings to shareholders in the form of dividends. Dividend investing can be done through individual stocks, mutual funds, or exchange-traded funds (ETFs).

Dividend ETFs allow investors to gain exposure to a diversified portfolio of dividend-paying stocks without having to actively manage individual stocks themselves. This can be a convenient and low-cost way for retail investors looking to invest for a consistent income stream.

There are several reasons why dividend ETFs can be a useful addition to an investment portfolio:

1. Generating income: Dividend ETFs can provide a steady stream of income for investors looking for regular payouts. These ETFs typically invest in stocks that have a history of paying dividends. The income received by holding dividend ETFs in your portfolio can help supplement other sources of income.
2. Diversification: Dividend ETFs typically invest in a broad basket of dividend-paying stocks, which can help spread risk and reduce the impact of individual stock performance on a portfolio.
3. Lower volatility: Dividend-paying stocks may be considered less volatile than non-dividend-paying stocks, as companies that pay dividends tend to have stable cash flows and a long-term focus. 
4. Long-term growth: Dividend ETFs may also offer the potential for long-term growth. Companies that pay dividends often have strong fundamentals and consistent earnings growth [1], which can lead to stock price appreciation over time.

A Dividend ETF for Canadian Investors

For investors seeking the benefits of a broad dividend investing strategy - with the inherent transparency, liquidity and diversification features of an ETF - Franklin Global Dividend Quality Index ETF (FLGD) could be an attractive option.

FLGD invests in a diversified portfolio of companies with high and persistent dividend income. It tracks the LibertyQ Global Dividend Index, a proprietary index composed of 100 North American, international developed, and emerging market companies with above-average dividend yields across a number of sectors and regions. Top holdings include companies such Unilever, Cisco Systems, and Procter & Gamble, among others. These companies are well-known for their financial strength, stability, and history of growing their dividends over the past 5 years.

A key benefit of FLGD is its low management fee. The ETF charges a management fee of 0.30%, which is lower than the average management fee of comparable actively managed mutual funds.[2]

Another advantage of FLGD is its diversified global exposure. The ETF invests in companies from both developed and emerging markets, providing access to the investment potential of a broad basket of global companies while helping mitigate risks associated with single-stock investing. This makes the ETF a useful tool for diversification, which can be an essential aspect of any investment strategy.

In summary, dividend ETFs can provide stable income streams, diversification, and potential for long-term growth. They invest in a diversified portfolio of dividend-paying stocks and are often less volatile than non-dividend-paying stocks. As a form of passive investing, they offer a more convenient and low-cost way for retail investors to invest in the stock market.

References:

[1] https://www.investopedia.com/articles/fundamental/03/102903.asp#toc-dividends-signal-fundamentals

[2] https://www.pionline.com/money-management/expense-ratios-stock-bond-mutual-funds-still-dropping-ici-says

IMPORTANT INFORMATION

Commissions, trailing commissions, management fees, brokerage fees and expenses may be associated with investments in mutual funds and ETFs. Please read the prospectus and fund fact/ETF facts document before investing. ETFs trade like stocks, fluctuate in market value and may trade at prices above or below the ETF’s net asset value. Brokerage commissions and ETF expenses will reduce returns. Performance of an ETF may vary significantly from the performance of an index, as a result of transaction costs, expenses, and other factors. Indicated rates of return are historical annual compounded total returns for the period indicated, including changes in unit value and reinvestment distributions, and do not take into account any charges or income taxes payable by any security holder that would have reduced returns. Mutual funds and ETFs are not guaranteed. Their values change frequently. Past performance may not be repeated.

ETF units may be bought or sold throughout the day at their market price on the exchange on which they are listed. However, there can be no guarantee that an active trading market for ETF units will develop or be maintained, or that their listing will continue or remain unchanged. While the units of ETFs are tradable on secondary markets, they may not readily trade in all market conditions and may trade at significant discounts in periods of market stress.

Foreign Investment Risk. The value of foreign securities may be influenced by the policies of foreign governments and by political, economic or social instability. There may be less information about foreign companies than North American firms and there may be lower standards of government supervision and regulation in foreign financial markets. The legal systems of some foreign countries may not adequately protect Unitholders’ rights. Some or all of these factors could make a foreign investment more or less volatile than a North American investment. If a Franklin ETF or the underlying fund in which a Franklin ETF invests holds these securities, the Franklin ETF may have difficulty enforcing legal rights in jurisdictions outside Canada.