The Horizons Equal Weight Canadian Bank Covered Call (BKCL ETF) is designed to provide exposure to a diversified array of Canadian banks. The fund aims to achieve two primary objectives: (a) mimicking the performance of Solactive Equal Weight Canada Banks Index, comprised of equally-weighted shares from a variety of Canadian banks, and (b) delivering attractive monthly distributions derived from both dividends and income generated from call options.
BKCL employs a dynamic covered call option writing program as a means to generate income. This strategy involves selling call options on the underlying equities held within the ETF’s portfolio. The goal is to generate additional returns from the premiums collected through these options, which can provide a cushion against potential downward movements in the market.
A distinctive feature of BKCL is its utilization of leverage. Leverage, in this context, involves borrowing funds to enhance investment potential. BKCL employs leverage at a controlled ratio of approximately 125%, which means that for every dollar of the ETF’s assets, an additional 25 cents are borrowed. This approach has the potential to amplify the fund’s performance, both in growth periods and when aligned with the performance of the Underlying Index.
BKCL was introduced on July 05, 2023. The Target Yield is 15% based on the fund fact sheet.
How writing a call option works at Horizons ETF?
Although Horizons’ actively managed covered call ETFs are flexible in their management, they adhere to key investment principles that optimize their strategic performance. Across all equity-focused covered call ETFs, a consistent practice involves writing covered calls with certain characteristics. Specifically, these ETFs tend to engage in the writing of shorter-dated (expiring in less than two months) and out-of-the-money (OTM) covered call options. Shorter-dated options strike a balance between earning attractive premiums and increasing the likelihood that the options will not be exercised in-the-money, which is advantageous for those who write covered calls.
The team responsible for writing options generally focuses on covering up to 50% of the underlying equities portfolio. This strategic approach aims to safeguard a portion of the potential price gains in the underlying securities. Consequently, these ETFs exhibit a close correlation with the performance of the securities upon which they write calls. Investors should expect to follow a trajectory that aligns with the underlying securities’ performance, enhanced by the additional income from the generated call option premiums.
It is important to note that the risk profile of covered call ETFs utilizing OTM options closely resembles that of the underlying securities they invest in. The following example illustrates how the OTM strategy aims to generate a total return primarily comprising a segment of the underlying security’s price return, combined with the value of the option premium generated through writing calls.
Source: Horizons ETF website
How had Covered call ETF’s performed historically?
In historical contexts characterized by bear markets, range-bound markets, and moderate bull markets, a covered call strategy has typically demonstrated the ability to outperform its underlying securities. However, during robust bull markets, when the underlying securities experience frequent rises beyond their strike prices, covered call strategies have historically exhibited slower growth. Nevertheless, even in these bullish phases, investors typically realize moderate capital appreciation alongside the accrual of dividends and call premiums.
BKCL vs HMAX! comparison
Strategy
The BKCL ETF from Horizons sells out-of-the-money (OTM) call options on 50% of the stocks. The OTM strategy caps the return of the written positions at the option strike price until the option expires. Generally, for Horizons ETFs, option expiries are 1 to 2 months.
When it comes to dividend investing, particularly in the realm of ETFs, two popular choices among investors are the Vanguard U.S. Dividend Appreciation ETF (VIG) and its Canadian counterpart, the Vanguard U.S. Dividend Appreciation Index ETF (VGG). Both aim to provide investors with exposure to U.S. companies that have a history of increasing dividends, but they come with their nuances, especially when considering the investment vehicle, such as a Registered Retirement Savings Plan (RRSP) or a Tax-Free Savings Account (TFSA) in Canada. (VIG vs VGG)
Executive summary VIG vs VGG
Feature
VIG (U.S. Dividend Appreciation ETF)
VGG (Vanguard U.S. Dividend Appreciation Index ETF)
Listing
NYSE
TSX
Currency
USD
CAD
Ideal for
RRSP accounts due to U.S.-Canada tax treaty benefits
TFSA accounts for more straightforward tax handling
Withholding Tax
No U.S. withholding tax on dividends in RRSP
Withholding taxes apply, but less relevant in a TFSA
Investor Focus
Suitable for those seeking U.S. dividend growth stocks and are comfortable with USD investments
Designed for investors wanting exposure to U.S. dividend stocks without currency conversion concerns
Tax Efficiency
High in RRSP due to tax treaty
High in TFSA due to Canadian listing and no need for currency conversion
MER
0.10%
0.29%
Access
Direct access to U.S. markets, may require currency conversion
Easy access for Canadian investors, traded in CAD
VIG: Vanguard U.S. Dividend Appreciation ETF
VIG is listed on the NYSE and primarily targets U.S. investors, although it’s also accessible to international investors, including Canadians. It tracks the performance of the NASDAQ US Dividend Achievers Select Index, comprising U.S. stocks that have a record of increasing dividends for at least ten consecutive years. VIG’s appeal lies in its focus on companies with the potential for long-term capital appreciation and a steady increase in dividends, making it an attractive option for growth-oriented dividend investors. This ETF is designed to follow an index comprised of U.S. companies that also meet rigorous standards for sustaining dividends. As a result, the ETF’s holdings represent some of the most reliable and esteemed businesses in the U.S. market.
One significant advantage of holding VIG, especially for Canadian investors, comes into play within an RRSP. Thanks to the tax treaty between Canada and the U.S., Canadian investors holding U.S.-listed securities like VIG in an RRSP are exempt from U.S. withholding taxes on dividends. This makes VIG particularly appealing for long-term holdings in an RRSP, where the compounding effect of reinvested dividends can significantly enhance portfolio growth over time without the drag of withholding taxes.
VGG: Vanguard U.S. Dividend Appreciation Index ETF
VGG, on the other hand, is a Canadian-listed ETF that seeks to replicate the performance of the U.S. Dividend Appreciation Index, excluding withholding taxes. It offers Canadian investors direct exposure to U.S. dividend-paying stocks but is traded in Canadian dollars on the Toronto Stock Exchange, making it more accessible and eliminating the need for currency conversion for Canadian investors.
For investments within a TFSA, VGG stands out as the better choice. The TFSA’s unique tax-free status does not extend to recovering withholding taxes on foreign dividends. Therefore, holding a Canadian-listed ETF that invests in U.S. stocks, like VGG, can be more tax-efficient. Investors benefit from the growth and dividend payouts of U.S. companies while avoiding the complexity and potential tax inefficiencies associated with foreign withholding taxes.
Investors holding Canadian dollars might lean towards VGG, whereas those with investments in U.S. dollars could prefer VIG. This is due to its significantly reduced management expense ratio (MER) – VIG’s MER stands at 0.10%, in contrast to VGG’s 0.29%. While dividends from international companies typically face less advantageous tax considerations, the fund has demonstrated commendable tax efficiency to date.
In terms of investment strategy, both ETFs align with a long-term, dividend-growth approach. Investors looking for steady income along with capital appreciation may find these ETFs aligning with their investment goals. However, investors should base their choice between VIG and VGG on their account type (RRSP vs. TFSA), tax situation, and currency preference.
Conclusion
For Canadian investors, the choice between VIG and VGG is not merely about the underlying dividend growth strategy but also involves considering the investment account and the associated tax implications. Holding VIG in an RRSP can maximize the benefits of the U.S.-Canada tax treaty, enhancing long-term growth without the burden of withholding taxes. For TFSAs, where such tax advantages do not apply, VGG offers a more straightforward and potentially more tax-efficient way to gain exposure to U.S. dividend growth stocks. As with any investment decision, it’s crucial to consider one’s financial goals, tax situation, and investment horizon before choosing between VIG and VGG.
In this article we will publish the complete list of stocks making the “S&P 500 Dividend aristocrat” by sector. Also, we will review the strategy of investing in dividend stocks. The “S&P 500 Aristocratic Dividend” is one of the most attractive indices for investors looking for a quality dividend Name and Symbols. The criteria’s for admission to the “S&P 500 Dividend Aristocrats” are very strict. The stocks that make up the list must have had 25 consecutive years history of increasing their dividends. The index is mainly composed of large cap stocks (Bluechips). If you are looking for the Best dividend stock to buy, there is no question that Dividend aristocrats are a good starting point.
Investing in dividend paying stocks is a strategy that appeals to young and old investors. Here is a quick reminder of the main concepts to keep in mind before applying this strategy:
Investment horizon: 5 years or more minimum. The strategy of investing in dividend paying stocks is not suitable for an investor with a short term horizon (less than 5 years).
Objective: The strategy can help you build passive income or further grow your capital by reinvesting the dividends received.
Risk Tolerance: Medium (provided you restrict yourself to selecting quality securities and having a diversified portfolio across several sectors).
About the list
The list of S&P 500 Dividend Aristocrats. The research firm Standard and Poors updates this list annually. In the update, Standard & Poor’s withdraws securities that would not have increased their dividend payments from the previous year. The index is rebalanced quarterly in January, April, July and October.
Again, the list is just a starting point to begin your research! The list has been organized by industry to make it easier for you to build a diversified portfolio.
Best dividend stocks to buy (Consumer discretionary)
Ticker
Name
Years of Dividend Increases
GPC
Genuine Parts Co.
67
LOW
Lowe`s Cos., Inc.
60
LEG
Leggett & Platt, Inc.
52
MCD
McDonald`s Corp
49
SON
Sonoco Products Co.
41
ATR
Aptargroup Inc.
30
PII
Polaris Inc
28
Financial ratios
Best dividend stocks to buy (Consumer staples)
Ticker
Name
Years of Dividend Increases
PG
Procter & Gamble Co.
67
CL
Colgate-Palmolive Co.
61
KO
Coca-Cola Co
61
LANC
Lancaster Colony Corp.
61
HRL
Hormel Foods Corp.
58
TR
Tootsie Roll Industries, Inc.
56
TGT
Target Corp
55
MO
Altria Group Inc.
54
SYY
Sysco Corp.
53
UVV
Universal Corp.
53
KMB
Kimberly-Clark Corp.
52
ADM
Archer Daniels Midland Co.
51
PEP
PepsiCo Inc
51
WMT
Walmart Inc
50
CLX
Clorox Co.
46
BF.B
Brown-Forman Corp.
40
MKC
McCormick & Co., Inc.
38
ANDE
Andersons Inc.
28
CHD
Church & Dwight Co., Inc.
27
SJM
J.M. Smucker Co.
27
Financial ratios
Best dividend stocks to buy (Real estate)
Ticker
Name
Years of Dividend Increases
ESS
Essex Property Trust, Inc.
29
FRT
Federal Realty Investment Trust.
56
NNN
NNN REIT Inc
34
O
Realty Income Corp.
26
UHT
Universal Health Realty Income Trust
39
Financial ratios
Best dividend stocks to buy (Utilities)
Ticker
Name
Price
Years of Dividend Increases
AWR
American States Water Co.
75.95
69
NWN
Northwest Natural Holding Co
37.03
68
CWT
California Water Service Group
45.93
56
SJW
SJW Group
60.35
56
BKH
Black Hills Corporation
52.55
54
MSEX
Middlesex Water Co.
57.23
51
ED
Consolidated Edison, Inc.
92.78
50
MGEE
MGE Energy, Inc.
65.63
46
ATO
Atmos Energy Corp.
115.79
40
UGI
UGI Corp.
25.1
36
WTRG
Essential Utilities Inc
36.61
32
ETR
Entergy Corp.
101.99
30
ARTNA
Artesian Resources Corp.
36.98
29
NEE
NextEra Energy Inc
59.75
27
NJR
New Jersey Resources Corporation
41.46
27
ES
Eversource Energy
55.96
26
YORW
York Water Co.
36.61
26
Financial ratios
Best dividend stocks to buy (Energy)
Ticker
Name
Years of Dividend Increases
NFG
National Fuel Gas Co.
53
XOM
Exxon Mobil Corp.
41
NC
Nacco Industries Inc.
38
CVX
Chevron Corp.
36
ENB
Enbridge Inc
27
EPD
Enterprise Products Partners L P
26
Financial ratios
Canadian Reits are listed companies that invest in real estate. A good number of investors would like to invest in real estate to diversify their investments, or out of the conviction. However, the direct management of a property presents many constraints, and requires time and skills. Also, delegating the management of the property to an agency does not solve all the problems. The solution lies in investing directly in Reits listed on the Toronto Stock Exchange.
How REITs operate?
A REIT is a real estate company. Its business is to invest the capital it raises in the acquisition or construction of buildings, with a the purpose of leasing them. Its activity provides it with rents and, where appropriate, capital gains. REITs are listed on the stock exchange, so REITs shares are open to individual investors within an regular investment account.
However, REITs have several particularities. They are present in different sectors of activity. They invest, for example, in different types of assets, such as shopping centres, offices, logistics buildings, hotels, among others. The other specificity of listed property companies is that they use financial leverage. That is to say that these companies will have equity to invest in real estate. But they will also use the loan to be able to maximize the return on their equity.
The third specificity of listed real estate investment companies is that they benefit from a tax exemption. Their income and capital gains are taxed at the level of its shareholders and not at the level of the property company itself. Note that REITs are required to redistribute to their shareholders at least 95% of their revenues. After deduction of costs, rents are distributed to shareholders as dividends, without being taxed at the company level.
You can hold REITs inside a Tax Free Saving Account or Registered Retirement Saving Plan, as well as a regular cash trading account. If you’re looking for an easy way to add the real estate asset class to your portfolio, REITs or ETFs might be the way to go.
Are there Risks with REITs?
Like a stock, a REIT is a market investment that fluctuates in value and is not guaranteed. Therefore, there are inherent risks when you invest in REITs. One example is how market cycles can impact REIT returns. When the real estate market drops, REITs tend to follow suit. REIT values can also fluctuate with interest rates. As rates rise, REIT values tend to rise, depending on other factors. This is why you should never invest all of your money in REITs, or any single asset class for that matter.
Top 5 best REITS in Canada
1) GRT-UN Granite REIT
Granite Real Estate Investment Trust (GRT-UN), commonly known as Granite REIT, is a Toronto-based real estate investment trust that focuses primarily on the acquisition, development, ownership, and management of industrial properties, including warehouses and logistics sites. The trust’s portfolio spans multiple countries, with a significant presence in North America and Europe, catering to a diverse range of tenants from various sectors.
Strengths
Diversified Portfolio: Granite REIT’s portfolio is geographically diversified across North America and Europe, reducing the risk associated with regional economic downturns. This diversification helps stabilize cash flows and revenue.
Quality Tenants: The trust tends to lease properties to high-quality, creditworthy tenants, which ensures steady rental income and reduces the risk of defaults.
Industrial Focus: The focus on industrial and logistics real estate is a significant strength, especially given the rising demand for warehousing and distribution centers driven by e-commerce growth and changes in global supply chains.
Financial Health: Historically, Granite REIT has maintained a solid balance sheet with reasonable levels of debt, which is crucial for sustaining operations and funding growth initiatives.
investors’ presentation – Top 10 tenants – Best Canadian Reits
Allied Properties Real Estate Investment Trust (AP-UN) is a leading owner, manager, and developer of urban office environments across major cities in Canada. Allied Properties REIT focuses on a distinctive niche, converting light industrial structures into modern office spaces, often catering to technology and creative industry tenants. This focus on urban workspaces in key Canadian markets, including Toronto, Montreal, and Vancouver, positions Allied in a unique segment of the real estate market.
Strengths
Urban Office Niche: Allied’s focus on transforming light industrial properties into trendy, urban office spaces appeals to a growing segment of the workforce, particularly in the technology and creative industries. This specialization differentiates Allied from other REITs with more traditional office or retail portfolios.
Prime Locations: Allied’s properties are strategically located in Canada’s major cities’ core urban areas, where space is at a premium and demand for office space remains strong, particularly from industries less affected by remote work trends.
Tenant Diversification: Despite a focus on specific sectors, Allied boasts a diversified tenant base within the tech and creative industries, reducing reliance on any single tenant or industry.
Sustainable Practices: Allied has a commitment to sustainability, which is increasingly important to tenants and investors. This includes maintaining and upgrading properties to high environmental standards, potentially reducing long-term operating costs and increasing appeal to eco-conscious tenants.
Adaptive Reuse Expertise: Allied’s expertise in the adaptive reuse of industrial buildings positions it well to capitalize on urban revitalization trends and the growing preference for unique, non-commodity office spaces.
3) Canadian Apartment REIT (CAR.UN)
Canadian Apartment Properties Real Estate Investment Trust (CAPREIT) (CAR.UN) is a publicly traded real estate investment trust specializing in the ownership and management of residential rental apartments, townhomes, and manufactured home communities across Canada. CAPREIT aims to provide secure, high-quality housing options to its tenants while delivering stable, long-term returns to its unitholders.
Strengths
Diverse Portfolio: CAPREIT boasts a large and diverse portfolio of residential properties, including apartment buildings, townhouses, and manufactured home communities. This diversity helps mitigate risks associated with regional economic downturns and fluctuating market conditions.
Geographical Spread: With properties spread across major urban centers and smaller cities in Canada, CAPREIT benefits from a broad geographical footprint. This spread can provide stability and growth opportunities, as the trust is not overly reliant on any single market.
High Occupancy Rates: CAPREIT typically enjoys high occupancy rates, a testament to the demand for its residential units and effective property management. High occupancy is crucial for generating steady rental income streams.
Experienced Management: The trust is managed by an experienced team with a proven track record in property management, acquisitions, and finance. This expertise is vital for strategic growth and operational efficiency.
Focus on Sustainability: CAPREIT has been focusing on sustainability initiatives, including energy-efficient upgrades and green building practices, which can lead to lower operating costs and appeal to environmentally conscious tenants.
4) CT REIT (CRT.UN)
CT Real Estate Investment Trust (CT REIT) (CRT.UN) is a Canadian-based closed-end real estate investment trust that focuses on owning and operating a portfolio of retail properties across Canada. Primarily anchored by Canadian Tire stores, CT REIT’s portfolio includes a mix of retail, mixed-use, and distribution centers. The trust’s strategic relationship with Canadian Tire Corporation provides a unique advantage in terms of tenant stability and portfolio focus.
Strengths
Strong Anchor Tenant: The majority of CT REIT’s properties are leased to Canadian Tire Corporation, one of Canada’s most recognized and established retail brands. This relationship provides a stable base of rental income and reduces the risk of significant vacancy rates.
Diverse Property Portfolio: Despite the strong association with Canadian Tire, CT REIT also owns and operates a variety of other retail and mixed-use properties, contributing to income diversification.
Strategic Growth Initiatives: CT REIT has demonstrated a capacity for strategic growth through the acquisition and development of new properties, as well as the expansion and improvement of existing ones, enhancing the overall value of its portfolio.
Long-Term Leases: Many of CT REIT’s leases are long-term agreements, which provides income stability and reduces the risk associated with tenant turnover.
Geographical Spread: With properties across various regions in Canada, CT REIT benefits from a broad market presence, mitigating the impact of regional economic fluctuations.
5) H&R REIT
H&R Real Estate Investment Trust (H&R REIT) is one of Canada’s largest diversified real estate investment trusts. H&R REIT’s portfolio spans a broad range of asset classes, including office, retail, industrial, and residential properties across Canada and the United States. This diversification across both geography and property types is a cornerstone of H&R REIT’s strategy, aiming to provide unitholders with stable and growing cash distributions by owning a diversified, growth-oriented portfolio.
Strengths
Diversified Portfolio: H&R REIT’s diversified asset base across various sectors—office, retail, industrial, and residential—helps mitigate the risk associated with any single market or economic sector. This diversification is a key strength, particularly in volatile market conditions.
Geographical Presence: With properties in both Canada and the United States, H&R REIT benefits from a broad market presence, which allows for capitalizing on different economic cycles and real estate markets in North America.
Scale and Scope: As one of Canada’s largest REITs, H&R has significant scale advantages, including access to capital, operational efficiencies, and the ability to engage in larger transactions that may not be accessible to smaller entities.
Experienced Management: H&R REIT benefits from an experienced management team with a proven track record in property management, acquisitions, and navigating the complexities of the real estate markets in North America.
Adaptive Strategy: H&R REIT has shown adaptability in its strategy, such as repositioning its portfolio by divesting non-core assets and focusing on high-growth areas, which can enhance long-term unitholder value.
In this post, we will review a popular index ETF on the TSX: the Vanguard S&P500 Canadian Hedge (VSP ETF). We will first explain what’s an index ETF. Then, we will discuss VSP’s historical performance, fees and holdings. Finally, we will compare VSP against similar ETFs.
What’s an index ETF
There are several types of ETFs. Index ETFs are the king of the hill. The first-ever ETF introduced to a North American Exchange was an index ETF. Index ETFs offer exposure to many securities and sometimes to a whole stock exchange at a meager cost. Their main goal is to acquire, on your behalf, all the securities that constitute a specific index to achieve the same return of the tracked index minus the fees.
One significant advantage of owning an index ETF is low fees. The manager is simply replicating the index’s performance either by acquiring directly or indirectly (using derivatives) the constituents of the index. There is no additional effort involved in the selection process, thus no need to generously compensate the portfolio manager. It might also be pertinent to know that empirical studies have consistently shown that active portfolio managers rarely beat the S&P 500 index in the long term. In other words, only a few managers can outguess the market in the long run.
VSP ETF Investment objective
Vanguard S&P 500 Index Canadian Hedge ETF seeks to track the performance of a broad U.S. equity index that measures the investment return of large-capitalization U.S. stocks. The S&P 500 Index, or the Standard & Poor’s 500 Index, is a market-capitalization-weighted index of the 500 largest publicly-traded companies in the U.S.
The S&P 500 is an excellent index because most of its constituents are large, established US corporations. Besides, It’s well-diversified across various sectors of the US economy. The S&P 500 is widely regarded as the best gauge of large-cap U.S. equities. It can be easily used to express an opinion on the US economy in general. In other words, if you are bullish on the performance of the American economy in the long term, it’s probably the best index for you.
What’s a Canadian hedge ETF?
When the manager has to replicate a U.S. index such as the S.P. 500 or the Nasdaq 100. It must acquire these assets in U.S. dollars. So, on a fairly regular basis, the fund has to convert the funds available in Canadian dollars into U.S. dollars. These conversions may be beneficial or have a negative impact depending if the Canadian dollar has appreciated or depreciated.
Many investors want to reduce this risk. To meet their needs, the majority of ETFs that reproduce a U.S. index offer a “hedged” version of their funds and sometimes another version that is traded only in U.S. dollars. Coverage acts as a kind of insurance. See the scenarios presented below:
VSP, ZUE and XSP have very low MER. Considering the quality of the portfolio of securities held by these ETFs, the low MER makes them very attractive to investors.
VSP is slightly ahead in terms of long-term performance. However, since all three ETFs track the same index and it’s understandable they will have very close performance.
VSP ETF: Morningstar rating
Rating: 3 out of 5.
VSP Dividend history
Type
Ex-div Date
Payment Date
Cash Distrib per Unit
Income
29 Jun 2022
08 Jul 2022
$0.207999
Income
24 Mar 2022
01 Apr 2022
$0.176667
Income
30 Dec 2021
10 Jan 2022
$0.247884
Capital Gains (ETFs)
30 Dec 2021
10 Jan 2022
$0.000000
Income
29 Sep 2021
08 Oct 2021
$0.201278
please consult issuers website for up-to-date data
VSP ETF Holdings
Holding Name
% of Market Value
Apple Inc.
6.63%
Microsoft Corp.
6.06%
Amazon.com Inc.
2.93%
Alphabet Inc. Class A
2.06%
Alphabet Inc. Class C
1.90%
Tesla Inc.
1.78%
Berkshire Hathaway Inc. Class B
1.55%
UnitedHealth Group Inc.
1.52%
Johnson & Johnson
1.47%
NVIDIA Corp.
1.19%
please consult issuers website for up-to-date data
please consult issuers website for up-to-date data
An Exchange Traded Fund (ETF) is a financial instrument traded on stock exchanges, managed by professional fund managers. In Canada, various issuers offer ETFs, including prominent banks such as BMO and TD, as well as investment companies like Vanguard and iShares.
With over 1000 ETFs presently accessible in the market, investors have a wide array of options. These funds cater to diverse investment preferences and risk appetites, making them suitable for both active and passive management strategies. Whether an investor seeks broad market exposure or specific sector focus, there’s likely an ETF designed to meet their unique needs within the expansive ETF landscape.
What is an index fund?
There are several types of ETFs. And index ETFs are the most popular in the financial markets. In fact, the first ETF to be launched on the North American stock exchange was an index ETF. Index ETFs offer exposure to a large number of securities and sometimes to a whole stock market at a very low cost. Their main objective is to acquire, on your behalf, all securities that constitute a specific index in order to obtain the same return of the index minus management fees.
S.P. 500 Index
The S&P 500 Index, or the Standard & Poor’s 500 Index, is a market-capitalization-weighted index of the 500 largest publicly-traded companies in the U.S.
The S&P 500 is an excellent index because most of its constituents are large established US corporations. It’s well diversified across various sectors of the US economy. The index is widely regarded as the best gauge of large-cap U.S. equities. It can be easily used to express an opinion on the US economy in general. In other words, if you are bullish on the performance of the American economy in the long term, it’s probably the best index for you.
All ETFs that replicate the performance of the S.P. 500 index will have the same securities in their assets and at about the same proportions as the index itself.
The Nasdaq 100
The Nasdaq-100 is one of the world’s preeminent large-cap growth indexes. It includes 100 of the largest domestic and international non-financial companies listed on the Nasdaq Stock Market based on market capitalization.
This index is dominated by companies in the Information Technology sector.
S&P/TSX 60
An index of the 60 largest companies on the Toronto Stock Exchange. This index is dominated by the energy and finance sectors.
What’s a Dividend ETF?
A Dividend ETF is an Exchange Traded Fund specifically designed to invest in a diversified portfolio of dividend-paying stocks. Dividend-paying stocks are shares of companies that distribute a portion of their profits back to shareholders in the form of dividends.
The primary objective of a Dividend ETF is to provide investors with a steady income stream through the regular payment of dividends. These funds typically focus on selecting stocks of companies that have a history of paying consistent and reliable dividends. Dividend ETFs may include stocks from various sectors and industries, and they often follow an index that emphasizes high dividend-yielding stocks.
Investing in a Dividend ETF can be attractive for income-oriented investors who seek a combination of capital appreciation and a steady flow of income. Additionally, these ETFs may offer diversification benefits by holding a basket of dividend-paying stocks, spreading risk across different sectors and companies.
Dividend: Tax implications for owning ETFs
There are so many possible structures for an ETF. Below, we will discuss mainly three common structures:
if held in an investment account (non registered)
Type 1: Canadian ETFs that invest in US or international stocks directly. There is 15% withholding tax that will impact the fund’s return;
Type 2: Canadian ETFs that invest in US ETFs which invests in US stocks. There is 15% withholding tax that will impact the fund’s return;
Type 3: Canadian ETFs that invest in US listed ETFs which invest in international stock. This is the structure that’s the least interesting for investors from a taxation perspective. 2 Taxes will be applied by the foreign country first and then the US.
if held in registered account: TFSA, RESP, RRSP
Canadian ETF: 1$ dividend scenario
Taxes
Dividend received
1- Holding US or International stocks directly
-0.15$ (withholding tax from US or foreign jurisdiction) Creditable
0.85$
2- Holding US listed ETFs that invest in US stocks
-0.15$ (withholding tax from US or foreign jurisdiction) Creditable
0.85$
3- Holding US listed ETFs that invest in International stocks
-0.15$ (withholding tax from foreign jurisdiction) Non creditable -0.13 (withholding tax from US) Creditable
ZXM.TO : CI Morningstar International Momentum Index Common Units (CAD Hedged)
ZZZD.TO : BMO Tactical Dividend Fund
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The process of opening a new account can be done entirely online. They also have agents available by phone, chat, and email if you need help. They guide you through the process of creating an account, transferring money and your first transaction.
3 -Security
CIBC is one of the largest banks in North America and one of the top five in Canada. CIBC Investor’s Edge is a division of CIBC Investor Services Inc., a subsidiary of CIBC. CIBC Investor Services Inc. is a member of the Canadian Investor Protection Fund (CIPF) and the Investment Industry Regulatory Organization of Canada (IIROC).
4 – A quality mobile application
The CIBC Investor ‘s Edge mobile app offers users a convenient way to monitor account balances and trade stocks, ETFs, options and more anytime, from anywhere. Users can also stay informed about important investment news, such as new IPOs, so they can take advantage of new opportunities as they arise.
Users will also have access to charts and tables to help them analyze their entire portfolio in one easy-to-read view, or review different investment accounts separately.
5 -Type of accounts offered
You can open all major investment accounts using CIBC Investor’s Edge, including:
Step 1 – Open a chequing account with CIBC Smart™ Start • Get a bank account with no monthly fees and unlimited transactions • Open an account at the Banking Center (starting April 18) or online (starting May)
Step 2 – Open a CIBC Investor’s Edge account • Choose from TFSA, RRSP and non-registered account • Open an account at the Banking Center or online
Exchange-traded funds (ETFs) that pay monthly dividends are popular with investors. Indeed, it is a way for many to have a relatively stable monthly income. There are a number of ETFs with monthly dividends. However, each ETF has a different objective and a unique investment strategy. For the purposes of this post, we have selected 10 Best Canadian monthly dividend ETFs.
Diversified Canadian Dividend ETFs (example : XDV, XEI, VDY, CDZ)
These ETFs focus on investing in top-performing Canadian companies that offer strong dividend yields and growth potential. They allocate your investments across various sectors of the Canadian economy. However, it’s worth noting that these funds often have a significant presence in the banking and energy sectors, which is reflective of the Canadian economic landscape.
In my assessment, two standout Canadian diversified dividend ETFs are XDV iShares Canadian Select Dividend Index and VDY FTSE Canadian High Dividend Yield Index. These ETFs offer a compelling combination of attributes, including low volatility, attractive returns, and strong overall performance. Notably, VDY boasts an impressive Morningstar rating of 5 Stars and an enticingly low Management Expense Ratio (MER) of just 0.21%.
ZWC and HDIV are well-known dividend-focused exchange-traded funds (ETFs) in the investment landscape. What distinguishes them is their classification as covered call ETFs. In essence, the fund managers overseeing these ETFs engage in a specific strategy where they sell call options on the securities held within the fund’s portfolio. This approach serves two primary purposes:
Portfolio Protection: One key objective is to safeguard the portfolio in the event of a significant decline in the value of the securities it holds. By selling call options, the fund generates income that can help offset potential losses in the underlying holdings.
Income Enhancement: The second goal is to bolster income distributions. These ETFs collect premiums from selling call options, thereby increasing the overall income generated by the fund. This boost in income is particularly attractive to income-focused investors.
Despite their popularity in the Canadian investment landscape, it’s essential to note that covered call ETFs like ZWC and HDIV have faced criticism for their relatively poor long-term performance.
When it comes to dividend yields, covered call ETFs often provide attractive returns due to the additional income generated from the premiums collected through options trading. However, from a long-term performance perspective, the strategy of writing covered calls can be less appealing, as it may limit the potential for capital appreciation.
For a more in-depth exploration of covered call ETFs and their performance in Canada, you can refer to our comprehensive guide on the best covered call ETFs in the country. This resource can provide you with a deeper understanding of these investment vehicles and their suitability for your financial goals.
Canadian Banking ETFs (FIE, RBNK et ZEB)
These ETFs are dedicated to investments in Canada’s most prominent banking institutions, making them a dual-purpose investment that combines sector-specific positioning with a focus on generating dividend income.
The Canadian banking sector is renowned for its financial robustness, and the dividends from these bank securities are highly coveted due to their appealing and dependable yields. Among the top choices for investors seeking exposure to the Canadian banking sector with an emphasis on dividend income, ZEB (BMO S&P TSX Equal Weight Banks Index) and RBNK (RBC CDN Bank Yield Index) stand out as excellent options. Both of these ETFs consistently deliver stable monthly dividend payments.
It’s also worth noting that both RBNK and ZEB come with a lower Management Expense Ratio (MER) compared to FIE, making them potentially more cost-effective choices for investors.
XDV – iShares Canadian Select Dividend Index ETF
XDV seeks long-term capital growth by replicating the performance of the Dow Jones Canada Select Dividend Index, net of expenses.
Holdings (XDV)
Name
Weight
Canadian Imperial Bank of Commerce
8.5%
Canadian Tire Corp Ltd Class A
6.8%
Bank of Montreal
6.3%
Labrador Iron Ore Royalty Corp
6.2%
Royal Bank of Canada
6.0%
BCE Inc
4.7%
TC Energy Corp
4.7%
Bank of Nova Scotia
4.7%
The Toronto-Dominion Bank
4.3%
National Bank of Canada
3.9%
Consult issuers’ website for up-to-date data
XEI – iShares Core S&P/TSX Composite High Dividend Index ETF
This ETF objective is to replicate the performance of the S&P/TSX Composite High Dividend Index ETF. The fund’s objective is long term capital growth by investing in Canadian companies operating across diversified sectors. XEI pays a monthly dividend income which can be appealing for investor who are looking for a frequent payout.
XEI portfolio
Name
Weight
Enbridge Inc
5.2%
Royal Bank of Canada
5.1%
Canadian Natural Resources Ltd
5.1%
The Toronto-Dominion Bank
5.0%
BCE Inc
5.0%
Suncor Energy Inc
4.9%
TC Energy Corp
4.8%
Bank of Nova Scotia
4.8%
Nutrien Ltd
4.5%
Bank of Montreal
4.0%
Consult issuers’ website for up-to-date data
ZWC – BMO CDN High Div Covered Call
The BMO Canadian High Dividend Covered Call ETF (ZWC) has been designed to provide exposure to a dividend focused portfolio, while earning call option premiums. The underlying portfolio is yield-weighted and broadly diversified across sectors.
The fund selection methodology uses 4 factors: – Liquidity; – Dividend growth rate; – Yield and payout ratio.
What’s unique about this ETF is that it uses covered calls to protect against downside risk. This being said, the covered call strategy provides limited downside protection. Also, when you write a covered call, you give up some of the stock’s potential gains. These ETFs will tend to have a higher yield and a lower performance.
The financial sector and Energy represents 56% of the total overall sector allocation.
ZWC High dividend ETF Holdings
Weight (%)
Name
4.96%
TORONTO-DOMINION BANK
4.91%
BCE INC
4.91%
ROYAL BANK OF CANADA
4.71%
CANADIAN IMPERIAL BANK OF COMMERCE
4.61%
BANK OF NOVA SCOTIA
4.24%
MANULIFE FINANCIAL CORP
4.20%
TRANSCANADA CORP
4.10%
ENBRIDGE INC
3.81%
BANK OF MONTREAL
3.77%
GREAT-WEST LIFECO INC
Consult issuer’s website for up-to-date data
VDY – Vanguard FTSE Canadian High Dividend Yield Index ETF
FTSE Canadian High Dividend Yield Index ETF tracks the performance of the FTSE Canada High Dividend Yield Index, which consists of Canadian stocks having a high dividend yield. Due to the nature of the Canadian market, this fund has large portion of its investment portfolio in Energy and Financials.
VDY holdings
Name
Weight
Royal Bank of Canada
14.1%
The Toronto-Dominion Bank
12.5%
Enbridge Inc
7.9%
Bank of Nova Scotia
7.7%
Bank of Montreal
6.5%
Canadian Imperial Bank of Commerce
4.9%
TC Energy Corp
4.7%
BCE Inc
4.4%
Canadian Natural Resources Ltd
4.1%
Manulife Financial Corp
3.7%
Consult issuers’ website for up-to-date data
Consult issuer’s website for up-to-date data
CDZ – S&P/TSX Canadian Dividend Aristocrats Index Fund
The S&P/TSX Canadian Dividend Aristocrats includes only large companies that are part of the TSX and who have increased their dividend consistently for at least 5 years period. This fund has been around for a while now.
CDZ holdings
Name
Weight
Keyera Corp
3.4%
SmartCentres
3.0%
Pembina Pipeline Corp
2.8%
Enbridge Inc
2.8%
Canadian Natural Resources Ltd
2.5%
Power Corporation of Canada
2.4%
Fiera Capital Corp
2.3%
Great-West Lifeco Inc
2.1%
BCE Inc
2.1%
Canadian Imperial Bank of Commerce
2.1%
Consult issuers’ website for up-to-date data
FIE – Ishares CDN Fin Mthly Income
Ishares CDN Fin Monthly Income seeks to maximize total return and to provide a stable stream of monthly cash distributions. FIE has a high exposure to the financial sector.
FIE holdings
Name
Weight
iShares S&P/TSX Cdn Prefr Shr ETF Comm
20.7%
iShares Core Canadian Corporate Bd ETF
10.0%
Canadian Imperial Bank of Commerce
9.1%
Royal Bank of Canada
8.5%
The Toronto-Dominion Bank
7.0%
Sun Life Financial Inc
6.5%
Manulife Financial Corp
6.5%
National Bank of Canada
6.5%
Power Corporation of Canada
6.0%
Consult issuers’ website for up-to-date data
RBNK – RBC CDN Bank Yield Index
RBC Canadian Bank Yield Index ETF seeks to replicate the Solactive Canada Bank Yield Index. The latter is focused only on the Canadian banking industry.
RBNK holdings
Name
Weight
Canadian Imperial Bank of Commerce
25.7%
Bank of Nova Scotia
24.0%
Royal Bank of Canada
16.6%
The Toronto-Dominion Bank
15.9%
Bank of Montreal
8.5%
National Bank of Canada
8.0%
Consult issuers’ website for up-to-date data
ZEB -BMO S&P TSX Equal Weight Banks Indx
The BMO Equal Weight Banks ETF has been designed to replicate, to the extent possible, the performance of the Solactive Equal Weight Canada Banks Index, net of expenses. The index includes the major Canadian banks with a balanced allocation as you can see in the composition of the portfolio below.
Weight (%)
Name
17,18%
BANK OF MONTREAL
16,90%
TORONTO-DOMINION BANK/THE
16,78%
CANADIAN IMPERIAL BANK OF COMMERCE
16,59%
NATIONAL BANK OF CANADA
16,50%
ROYAL BANK OF CANADA
15,86%
BANK OF NOVA SCOTIA/THE
0,19%
CASH
Please consult issuers’ website for up-to-date data
HDIV -Hamilton Enhanced Multi-Sector Covered Call
HDIV is a passive covered call ETF. It’s ideal for investors who seek high dividend income and low volatility. HDIV invests in a basket of 7 covered call & sector focus ETFs. The fund manager uses also cash leverage of 25% to enhance yield and growth potential. The index tracked is The Solactive Multi-Sector Covered Call ETFs Index TR x 1.25.
The Global X Lithium & Battery Tech ETF (LIT) aims to provide Canadian investors with investment results that closely follow the price and yield performance of the Solactive Global Lithium Index, before factoring in fees and expenses. This ETF focuses on companies involved in lithium battery technology, which is crucial for the growth of electric vehicles (EVs), renewable energy storage, and mobile devices.
What’s the Solactive Global Lithium Index?
The Solactive Global Lithium Index consists of 40 stocks and is designed to monitor the performance of the largest and most liquid listed companies engaged in lithium exploration and/or mining, as well as the production of lithium batteries. This index is calculated as a total return index in USD and undergoes semi-annual adjustments. The country composition of the index is as follows: Canada contributes 31.9%, the United States accounts for 28.6%, Australia makes up 12.3%, Japan represents 11.8%, and the remaining 15.4% is allocated to other countries.
With the increasing demand for electric vehicles and renewable energy solutions, the lithium battery industry holds immense growth potential in the coming decade. At the heart of these technologies, lithium batteries play a crucial role.
The Global X Lithium & Battery Tech ETF offers a compelling investment opportunity for those looking to capitalize on this industry. One key advantage of investing in this ETF is the ability to mitigate company-specific risks. Instead of focusing on individual companies’ performance, investors can track the trajectory of lithium prices. Moreover, the ETF provides broad exposure to the entire electric vehicle supply chain including mining. This comprehensive approach helps to diversify risks within the industry and offers the potential for stable long-term returns.
However, it is important to consider potential challenges that the Global X Lithium & Battery Tech ETF may encounter. A decline in Chinese real estate prices, for instance, could have an impact on global electric vehicle sales and disrupt the overall supply chain. It is advisable for investors to stay informed about such developments and evaluate their potential implications on the ETF’s performance.
In summary, the Global X Lithium & Battery Tech ETF presents an enticing opportunity for investors seeking exposure to the thriving lithium battery technology industry. By diversifying risk and gaining access to the entire electric vehicle supply chain, investors can participate in this growing sector with confidence.
The iShares Canadian Select Dividend Index ETF (XDV Stock) provides long-term capital growth by investing in 30 high yielding Canadian companies in the Dow Jones Canada Total Market Index.
XDV pays a monthly dividend income which can be appealing for investor who are looking for a frequent payout.
Updated daily – XDV ETF
What is Dow Jones Canada Select Dividend Index?
The index universe is defined as all dividend-paying companies listed on the Toronto Stock Exchange, excluding income trusts.
The dow Jones Canada Select Dividend Index is rebalanced annually in March. It has 29 constituents of the index. Below, we will detail the methodology used to select the ‘best dividend stocks’.
Methodology
Selected stocks should meet the requirements below:
-Be part of the Index Universe.
-Only stocks that paid dividends in each of the previous five years are selected.
-Enough trading volume
-A five-year average dividend coverage ratio of greater than or equal to 125%. The formula used: Earning per Share / Annual Dividend per Share
The approved stocks are then re-screened by ranking them in descending order by using the indicated annual dividend yield (not including any special dividends). The maximum number of constituents is 30.
Constituent Weightings: Constituent weightings are assigned annually based on IAD. The weight of any individual company is restricted to 10% within the index. Such restrictions are implemented on a quarterly basis
In this section, we will compare XDV with Both XEI – Ishares S&P TSX Comp High Div Index ETF and VDY Vanguard FTSE CDN High Div Yld Index. See tables below:
The tables above indicate that VDY is ahead in terms of short-term performance. VDY’s exceptional performance can be attributed to the financial sector, which makes up almost 60% of its portfolio.
For long term performance, VDY is slightly better than both XEI and XDV.
Diversification, Volatility and Dividend yield:
XDV holds 30 high dividend-paying stocks in its holdings while VDY 39 and XEI 77. Thus, XEI offers better diversification. In terms of volatility, all three ETFs have the exact Beta suggesting the same level of risk. XEI has the highest dividend yield, but VDY and XDV are close.
Conclusion:
XEI has the upper hand when it comes to diversification. This ETF is not biased towards a specific sector, while Canadian banks dominate XDV and VDY.
Source: TD Market research, Beta is measure of volatility over 5 years period. The higher the Beta / The higher the volatility. A beta of 1 means the stock or ETF is as volatile as the TSX.
XDV Stock dividend history
XDV pays dividends on a monthly basis. Please refer the last column of the table below for the amount of dividend distribution.
Amount
Dividend Type
Frequency
Ex-Div Date
Record Date
Pay Date
Declare Date
0.1200
Regular
Monthly
1/25/2024
1/26/2024
1/31/2024
1/19/2024
0.1150
Regular
Monthly
12/28/2023
12/29/2023
1/4/2024
12/20/2023
0.1150
Regular
Monthly
11/21/2023
11/22/2023
11/30/2023
11/15/2023
0.1150
Regular
Monthly
10/25/2023
10/26/2023
10/31/2023
10/19/2023
XDV Stock holdings
Name
Weight %
CANADIAN IMPERIAL BANK OF COMMERCE
9,11
BANK OF MONTREAL
7,00
ROYAL BANK OF CANADA
6,33
CANADIAN TIRE LTD CLASS A
6,17
BANK OF NOVA SCOTIA
5,06
TC ENERGY CORP
4,95
LABRADOR IRON ORE ROYALTY CORP
4,94
BCE INC
4,92
TORONTO DOMINION
4,77
NATIONAL BANK OF CANADA
3,94
please consult issuer’s website for up-to-date data
XDV Sectors allocation
Type
Fonds
Finance
55,66
COMMUNICATION
11,82
Services publics
11,12
Énergie
6,75
Consommation discrétionnaire
6,17
Matières
5,77
Valeurs industrielles
2,32
Liquidités et/ou produits dérivés
0,39
please consult issuer’s website for up-to-date data
