7 High-Yielding Dividend ETFs for Canadian Investors
Lower interest rates create a more positive or supportive backdrop for some dividend-paying equities.
With interest rates moving lower, the market environment for equities is improving. Lower interest rates should lead to improved valuations for companies in the future. Furthermore, interest expense for companies should also decline with rates declining.
Against this backdrop, high-quality equities with sustainable and predictable dividends should see an improvement in their valuations, and longer-duration growth equities should also benefit. For income-oriented investors, now is an opportune time to begin looking at dividend-focused solutions that provide exposure to high-quality businesses with attractive valuations and strong dividend yields.
A Look At High Dividend Yielding ETFs
In a falling interest rate environment, steady and predictable dividend yield and growth will become more attractive to income investors. As such, investment solutions that provide exposure to companies reflecting such attributes will be sought after. The following ETFs are high-yielding dividend solutions for Canadian investors that provide exposure to established companies with long performance track records.
The iShares S&P/TSX Composite High Dividend ETF (Ticker: XEI) is a passively managed strategy that reflects the performance of the S&P/TSX Composite High Dividend Index. The S&P/TSX Composite High Dividend Index is a strategy index focused on dividend income. The index comprises 50 to 75 stocks selected from the S&P/TSX Composite. Approximately two-thirds of the index’s holdings reside in the Energy and Financials sector.
The iShares Canadian Select Dividend ETF (Ticker: XDV) is a passively managed strategy that reflects the performance of the Dow Jones Canada Select Dividend Index, designed to measure the performance of high-dividend-paying companies in Canada. The index has approximately 30 holdings, with a significant allocation (i.e., over 50%) toward the Financials sector.
The Invesco Canadian Dividend ETF (Ticker: PDC) is a passively managed strategy that reflects the performance of the Nasdaq Select Canadian Dividend Index. The index is comprised of Canadian securities with at least five consecutive years of the same or increasing annual regular dividend payments. The index has approximately 40 holdings, with a significant allocation (i.e., over 70%) towards the Energy and Financials sector.
The Vanguard FTSE Canadian High Dividend Yield ETF (Ticker: VDY) is a passively managed strategy that tracks the performance of the FTSE Canada High Dividend Yield Index. The index reflects equities characterized by higher-than-average dividend yields across the market capitalization spectrum. The index has approximately 50 holdings, with a significant tilt (i.e., over 50%) towards the Financials sector.
The iShares Core MSCI Canadian Quality Dividend ETF (Ticker: XDIV) is a passively managed strategy that reflects the performance of the MSCI Canada High Dividend Yield 10% Security Capped Index. The index is designed to reflect the performance of equities in the MSCI Canada High Dividend Yield Index (excluding REITs) with higher dividend income and quality characteristics than average dividend yields that are both sustainable and persistent. The index also applies quality screens and reviews 12-month past performance to omit stocks with potentially deteriorating fundamentals that could force them to cut or reduce dividends. Additionally, if the weight of any security in the MSCI Canada High Dividend Yield Index is greater than 10% of the index, its weight will be capped at 10%.
The index is relatively concentrated, with approximately 20 holdings and a significant allocation (i.e., over 70%) to the Financials and Energy sector.
The BMO Canadian Dividend ETF (Ticker: ZDV) invests in Canadian equities using a rules-based methodology that considers the three-year dividend growth rate, yield, and payout ratio. The index is designed to provide exposure to a yield-weighted portfolio of Canadian dividend-paying stocks. Presently, the fund has over 50 holdings, with a significant allocation (i.e., greater than 60%) toward the Financials and Energy sector.
The iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (Ticker: CDZ) reflects the performance of the S&P/TSX Canadian Dividend Aristocrats® Index, which is designed to measure the performance of companies included in the S&P Canada BMI that have followed a policy of stable or increased dividends every year for at least five years. The index constituents are weighted according to their indicated yield as of the last trading date in November.
The index has over 90 holdings. Though one-third of the fund’s exposure is to the Financials sector, the following third is split between the Energy, Industrials, and Utilities sectors.
Takeaway
For Canadian investors looking to gain comprehensive exposure to dividend-focused equities, the previously mentioned ETFs are turnkey solutions that enable them to gain such access. With interest rates lowering, the dividend-oriented solutions provide income-oriented investors an avenue to continue generating meaningful income overtime.
Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.
