Hamilton introduced a new ETF called UMAX, which focuses on the utilities sector (UMAX was launched June 14th 2023). This ETF is designed to provide investors with attractive monthly income while offering exposure to a diversified portfolio of utility services equity securities primarily listed in Canada and the U.S. UMAX aims to reduce volatility and enhance dividend income by employing an active covered call strategy. This post is also available in Video format.
Unlike some other income ETFs, UMAX does not utilize leverage. However, it still aims to generate higher monthly income for investors. It offers exposure to blue-chip Canadian utilities, including pipelines, telecoms, and railways. By implementing the covered call strategy, UMAX seeks to enhance monthly income and reduce volatility. Currently, the coverage through covered calls is approximately 50%.
UMAX targets a yield of 13% or more, with monthly distributions to provide consistent income.
Investors can access UMAX, along with other Hamilton ETFs, on the Toronto Stock Exchange (TSX). These ETFs can be included in various portfolios, such as RRSP, RRIF, DPSP, RDSP, FHSA, RESP, and TFSA. Additionally, for investors interested in a Dividend Reinvestment Plan (DRIP), they can contact their individual brokerage for setup details.
Similar funds from Hamilton ETFs
In addition to UMAX, Hamilton offers other notable ETFs in their lineup, including HMAX Hamilton Canadian Financials Yield Maximizer and HYLD Hamilton Enhanced U.S. Covered Call ETF.
HMAX is designed to maximize yield within the Canadian financials sector. It aims to provide investors with attractive monthly income by investing in a diversified portfolio of Canadian financial companies. On the other hand, HYLD focuses on the U.S. market and utilizes a similar covered call strategy to generate income and reduce volatility. It seeks to provide enhanced yield potential by investing in a diversified portfolio of U.S. securities, primarily in the large-cap segment.
How UMAX is able to set such high dividend yield target?
According to the issuers’ website, UMAX is able to provide higher monthly income for two reasons:
UMAX writes covered call options on approximately 50% of the portfolio
The fund is currently writing option At The Money (ATM) wheras similar funds are writing options OTM (Out of The Money).
UMAX vs ZWU vs HUTE ETF
Strategy
UMAX: This ETF allocates 50% of its portfolio and uses at-the-money (ATM) options. It offers a dividend yield of approximately 13%* and does not employ leverage.
ZWU: Similar to UMAX, ZWU also allocates 50% of its portfolio, but it utilizes out-of-the-money (OTM) options. It has a dividend yield of approximately 8.6% and does not employ leverage.
HUTE: HUTE allocates 33% of its portfolio using OTM options and offers a dividend yield of 9.8%. It employs 25% leverage to amplify returns.
% potfolio
Option strategy
Divdend Yield approx
Leverage
UMAX
50%
ATM
13%*
No
ZWU
50%
OTM
8.6%
No
HUTE
33%
OTM
9.8%
25%
Covered call strategy
ATM vs OTM Options
I invite you to consult the table below to understand the difference. As you can see, the UMAX fund has chosen to issue ATM call options because they are more profitable than OTM options. First, the premium is higher than that generated by an OTM strategy. However, the risk of loss is also higher.
The risk for an option always corresponds to the probability that the buyer will exercise it. If the strike price is higher than the current price (OTM), the chances of the option being exercised are low. However, the probability of the option being exercised is more plausible for an ATM option where the strike price is very close or equal to the stock’s current price.
Table
Premium or option price
Risk
Reward
ITM (In the money call option) Stock price > Strike price
High
High
High
OTM (Out of the money call option) Stock price < Strike price
Typical expected result when writing a covered call option
Video
Summary table Risk vs Benefits of a covered call strategy
Aspect
Description
Strategy
Selling call options on a security already owned in the portfolio
Name
Covered call strategy
Risk
Potential for limited upside if the stock price rises above the strike price
Benefit
Generates additional income through premium payments received from selling call options
Goal
To earn income from stock holdings while potentially reducing downside risk
Use
Often used by investors who are willing to sell their stock at a certain price if it reaches that level
Outcome
If the stock price stays below the strike price, the option expires worthless, and the investor keeps the premium payment. If the stock price rises above the strike price, the option buyer may exercise their right to buy the stock, and the investor must sell the stock at the strike price, but still keeps the premium payment.
UMAX Portfolio of stocks
TICKER
NAME
WEIGHT
BCE
BCE Inc
7.7%
TRP
TC Energy Corp
7.7%
ENB
Enbridge Inc
7.7%
RCI/B
Rogers Communications Inc
7.7%
FTS
Fortis Inc/Canada
7.7%
EMA
Emera Inc
7.7%
PPL
Pembina Pipeline Corp
7.7%
WCN
Waste Connections Inc
7.7%
CNR
Canadian National Railway Co
7.7%
H
Hydro One Ltd
7.7%
T
TELUS Corp
7.7%
NPI
Northland Power Inc
7.7%
CP
Canadian Pacific Kansas City Ltd
7.7%
Management fees
Management Fee
0.65%
UMAX Dividends
Amount
Adj. Amount
Ex-Div Date
Record Date
Pay Date
Declare Date
0.1710
0.1710
5/31/2024
5/31/2024
6/7/2024
5/24/2024
0.1710
0.1710
4/29/2024
4/30/2024
5/7/2024
4/23/2024
0.1716
0.1716
3/27/2024
3/28/2024
4/5/2024
3/21/2024
0.1715
0.1715
2/28/2024
2/29/2024
3/7/2024
2/22/2024
0.1721
0.1721
1/30/2024
1/31/2024
2/9/2024
1/23/2024
Sector Allocation
UMAX ETF provides a diversified portfolio with sector allocations designed to capture opportunities across different segments of the market. The fund’s sector allocation includes Communication Services (23.5%), Pipelines (23.1%), Industrials (23.9%), and Utilities (30.9%).
Communication Services focuses on telecommunications, media, and entertainment. Pipelines offer exposure to essential energy infrastructure. Industrials cover manufacturing, transportation, and construction. Utilities provide stability and income generation potential.
The UMAX ETF’s sector allocation aims to balance growth potential, income generation, and stability, offering investors a well-rounded investment approach. As with any investment, thorough research and consideration of personal circumstances are recommended. Consulting with a financial advisor is advised.
Final thought: is UMAX is the right ETF for you?
If you’re in pursuit of consistent dividend income, you’ve likely come across the UMAX ETF, which offers an alluring yield through its covered call strategy. This approach can indeed provide an attractive stream of income, but there are some key considerations to bear in mind.
Firstly, the high distribution offered by UMAX can be a double-edged sword. While it’s great for generating income, it may also increase your tax burden, so it’s wise to consult with a tax advisor to understand the implications for your specific situation.
Secondly, it’s important to understand that the covered call strategy comes with limitations. By design, it can cap the potential for growth. As highlighted in this post, roughly 50% of the UMAX portfolio is impacted by this strategy. The use of at-the-money (ATM) options is primarily aimed at boosting income, often at the expense of significant growth.
So, who is UMAX best suited for? This ETF is more aligned with investors who have a genuine need for a monthly income source and are willing to tolerate moderate volatility. If you can stomach the ups and downs and prioritize income over the potential for substantial long-term price appreciation, then UMAX may align with your financial goals.
However, it’s crucial to remember that no investment comes without trade-offs. The covered call strategy provides stability and income, but it may not deliver the same growth prospects as other investments. Your choice should depend on your unique financial circumstances, risk tolerance, and investment objectives.
In conclusion, UMAX can be a valuable tool for income-focused investors, but it’s not a one-size-fits-all solution. Consider your long-term goals, tax implications, and willingness to accept moderate volatility when deciding if this ETF is the right fit for your portfolio.
Covered call ETFs have gained immense popularity among Canadian investors, with several of these ETFs being managed with billions of dollars in assets. In this article, we will explore the top covered call ETFs available in Canada. Investors are drawn to covered call ETFs for three compelling reasons:
High dividend yield: thanks to the premiums earned when writing call options, the manager under certain conditions can earn premiums and enhance distributions;
Low volatility. Writing a call option is a conservative strategy aimed at reducing volatility;
Great for passive income: if you’re main objective is to achieve high dividend yields and build passive income, then covered call ETFs are a good option. But, remember the high dividend yield comes at a price which very low growth potential.
Options make it possible to hedge a possible decline in a security and thus limit its loss through a gain on the option. To apply this hedging strategy, you have to take a short position on a call option, in other words sell a call.
The sale of calls achieves two objectives:
· Set the sale price of these securities (exercise price) and therefore set an acceptable loss.
· Collect a premium, i.e. additional income, or limit losses if the strike price is reached.
The option seller will be obligated to deliver the securities if exercised at the price fixed in advance. In this case the market will have evolved contrary to these expectations, it will have appreciated. The option investor will sell his securities for less than the market price.
Covered call options 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. Covered call ETFs will tend to have a higher yield and a lower performance.
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.
ZWC is a great option if you are seeking a diversified ETF that invests in the Canadian Economy. This fund offers an attractive yield. Since it’s a covered call ETF, it was less impacted by the recent correction in the market. The long term performance is decent.
HDIV and HDIF are strong competitors to ZWC. These ETFs are diversified accorss various sectors. They use the covered call strategy plus additional leverage to push even higher the dividend yield. Since these two ETFs are relatively new, their performance and MER are not yet published. One thing is certain, though, the MER for both HDIV and HDIF will definitely be higher than ZWC. Also, the additional leverage used by these funds enhances the yield but also creates more risk for investors.
ZWH is ideal for investors looking for US dividends in their portfolio. This fund invests in large US corporations such as Apple. Microsoft…etc. It has also excellent sector diversification. In the same category, HBF is a great choice too. HBF invests mainly in large US corporations that hold brand power in their industries. The fund had a great historical performance in addition to an attractive yield.
Sector ETFs
Banking
ZWB is an excellent play if you are seeking exposure to Canadian banks. The long term performance is also great. Canadian banks are known for their solid dividends and most major Canadian banks are dividend aristocrats. Another strong competitor to ZWB is HMAX. It’s a new fund offered by Hamilton ETF. The fund invests in the Canadian banking sector. This fund aims to provide an attractive dividend yield (target 13%) using a covered call strategy. The strategy consists of writing call options on (50% of the portfolio) to collect premiums and maximize monthly distributions.
Technology
HTA boast an amazing long term performance thanks to its 100% exposure to large Teck stocks. However, the performance since the start of the year is the worst among all the ETFs selected. Some consider this a perfect time to buy on weakness to benefit from the enhanced yield and the future potential of Tech stocks.
Finally, LIFE is an excellent ETF that offers exposure to the healthcare sector. In total, 20 large health stocks make up LIFE’s portfolio.
An investor has 100 shares of Company A in his portfolio. Company A’s share is worth $ 30. He anticipates a stagnation or a slight drop in its price and he is ready to sell them at the price of 26 $. He decides to sell a call with the following characteristics:
He collects the following amount: 4 x 100 or 400 $ (premium)
Two cases should be distinguished:
CASE 1
Company A’s share price rose above the breakeven point of $ 30. And, the break-even point = exercise price + premium = 26 + 4 = 30
The buyer of the option will choose to exercise his right to buy and, as the seller of the call, the seller will have to sell the shares at the strike price.
During this operation:
the seller sold his shares for $ 26, which constitutes an acceptable loss for him.
the seller collected the amount of the premium of $ 4, which helped boost the performance of his investments (yield).
CASE 2
Company A’s share price has fallen below the breakeven point of $ 30.
The buyer of the option will choose not to exercise his right to buy and the seller will not have to sell his shares.
Thanks to this operation, the seller keeps his shares in the portfolio and he collected the amount of the premium which generated an additional return.
ZWB – BMO Covered Call Canadian Banks
The ZWB aims to provide exposure to a portfolio of dividend-paying securities (Canadian Banks), while collecting premiums related to call options. The portfolio is chosen on the basis of the criteria below:
• dividend growth rate; • yield; • payout ratio and liquidity.
ZWB holdings
Name
Weight
BMO Equal Weight Banks ETF
27.2%
Bank of Montreal
12.9%
Canadian Imperial Bank of Commerce
12.7%
Royal Bank of Canada
12.1%
National Bank of Canada
11.9%
The Toronto-Dominion Bank
11.9%
Bank of Nova Scotia
11.4%
Please visit issuers’ website for up-to-date figures – Best Covered Call ETF Canada
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.
ZWC is an excellent option for conservative investors looking for a steady income and low volatility. It’s tax-efficient because the dividends are all coming from Canadian companies. The financial sector and Energy represents 53% of the total overall sector allocation.
ZWC ETF Holdings
Company Name
Allocation
Canadian National Railway Co
5.4%
BCE Inc
5.2%
TELUS Corp
5.1%
Enbridge Inc
5.0%
Royal Bank of Canada
5.0%
Canadian Imperial Bank of Commerce
4.9%
Bank of Nova Scotia
4.7%
The Toronto-Dominion Bank
4.6%
Manulife Financial Corp
4.3%
Please visit issuers’ website for up-to-date figures – Best Covered Call ETF Canada
ZWP – BMO Europe High Dividend Covered Call ETF
The BMO Europe High Dividend Covered Call ETF (ZWP) has been designed to provide exposure to a dividend focused portfolio. These dividend paying companies are selected based on:
dividend growth rate,
yield,
payout ratio and liquidity.
ZWP Dividend ETF Holdings
Company Name
Allocation
Roche Holding AG
4.0%
Nestle SA
4.0%
Novartis AG
4.0%
GlaxoSmithKline PLC
4.0%
Sanofi SA
3.8%
TotalEnergies SE
3.7%
Unilever PLC
3.7%
Enel SpA
3.7%
Please visit issuers’ website for up-to-date figures – Best Covered Call ETF Canada
Geographic allocation
Countries
Weight
Switzerland
23.66%
Germany
24.24%
United Kingdom
18.76%
France
16.72%
Other (multiple countries)
16.62%
Please visit issuers’ website for up-to-date figures
Sector allocation
Type
Fund
Information Technology
6.22
Industrials
12.18
Consumer Discretionary
11.56
Consumer Staples
11.78
Health Care
16.56
Financials
14.79
Materials
9.48
Communication
8.10
Energy
3.89
Utilities
3.66
Please visit issuers’ website for up-to-date figures – Best Covered Call ETF Canada
ZWH – BMO US High Dividend Covered Call ETF
ZWH 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 utilizes a rules-based methodology that considers the following criteria:
dividend growth rate,
yield,
payout ratio,
liquidity.
ZWH Dividend ETF Holding
Company Name
Allocation
Apple Inc
4.2%
Microsoft Corp
4.2%
Coca-Cola Co
4.1%
AbbVie Inc
4.1%
The Home Depot Inc
4.1%
Procter & Gamble Co
4.1%
Pfizer Inc
4.0%
Please visit issuers’ website for up-to-date figures
Geographic allocation
Country
Fund
USA
100.0%
Please visit issuers’ website for up-to-date figures
Please consult issuers’ website for up-to-date figures
ZWK -BMO Covered Call US Banks
The BMO Covered Call U.S. Banks ETF (ZWK) is professionally managed by BMO Global Asset Management. The fund has been designed to provide exposure to a portfolio of U.S. banks while earning call option premiums.
The fund invests in 38 US Banks. It’s ideal for investors looking for dividend income. The dividend yield on November 24th was 6.19%!
The fact that the fund uses call options accomplishes two things:
increases the dividend yield;
reduces volatility but also growth potential. So, it’s something to keep in mind.
HTA is an ETF that invests in an equally weighted portfolio of 20 large-cap technology companies (globally). In order to generate an enhanced monthly distribution yield, an active covered call strategy is engaged.
Covered call strategies are great as they generate additional income for investors (in the form of premiums). The strategy is somewhat conservative and aims at preserving the capital invested primarily. On the other hand, the strategy limits potential growth.
Name
Weight
Sector
NVIDIA Corporation
6.9%
Semiconductors
Advanced Micro Devices, Inc.
6.5%
Semiconductors
QUALCOMM Inc
6.5%
Semiconductors
Intuit Inc.
5.5%
Software
Apple Inc.
5.3%
Technology Hardware
Applied Materials
5.2%
Semiconductors
Keysight Technologies
5.2%
Electronic Equipment
Broadcom Inc.
5.1%
Semiconductors
Microsoft Corp
5.1%
Software
Adobe Inc.
5.0%
Software
HBF – Harvest Brand Leaders Plus Income
HBF is an equally weighted portfolio of 20 large companies selected from the world’s Top 100 Brands. The ETF is designed to provide a consistent monthly income stream with an opportunity for growth. In order to generate an enhanced monthly distribution yield, an active covered call strategy is engaged.
LIFE seeks to replicate the performance of the Solactive Global Healthcare 20 Index. This is an equally weighted index of 20 global health care companies.
LIFE ETF writes covered call options on up to 33% of the portfolio securities, at the discretion of the Manager. The level of covered call option writing may vary based on market volatility and other factors.
LIFE.B is non hedged. LIFE is Canadian hedged to reduce exchange risk.
Though LIFE ETFs offer a interesting yield, the performance was negative.
LIFE and LIFE-B high dividend ETF Holdings
NAME
WEIGHT
COUNTRY
Danaher Corp
5.18%
UNITED STATES
Novartis AG
5.12%
SWITZERLAND
Intuitive Surgical Inc
5.10%
UNITED STATES
CSL Ltd
5.08%
AUSTRALIA
AstraZeneca PLC
5.07%
BRITAIN
Pfizer Inc
5.01%
UNITED STATES
AbbVie Inc
5.01%
UNITED STATES
Medtronic PLC
4.92%
IRELAND
Sanofi
4.88%
FRANCE
GlaxoSmithKline PLC
4.86%
BRITAIN
Please consult issuers’ website for up-to-date figures
HDIF -Harvest Diversified Monthly Income ETF
HDIF is a relatively new fund from Harvest ETFs (created on Feb 2022). It’s a covered call ETF and its main target audience are income/dividend investors.
HDIF is a fund of funds. It means this ETF invests in other ETFs to provide investors with diversification across various sectors of the economy ( Healthcare, Global Brands, Technology, Utilities, and US Banks). The primary objective is to provide a higher yield than traditional dividend ETFs by using a covered call strategy.
Additional facts about HDIF:
– The portfolio is reconstituted and rebalanced quarterly (minimum);
– The covered call strategy is applied on up to 33% of each equity securities held in underlying portfolios.
Sector allocation
Sector
% Allocations
Financial Services
31.8%
Healthcare
21.8%
Technology
23.4%
Comm. Services
15.0%
Utilities
13.7%
HDIF ETF review: Portfolio
ETF
Allocation
HUTL Harvest Equal Weight Glbl Utilts Inc
20.5
HHL Harvest Healthcare Leaders Inc
20.3
HBF Harvest Brand Leaders Plus Inc
20.7
HUBL Harvest US Bank Leaders Income Cl A
20.7
HTA Harvest Tech Achievers Gr&Inc
20.7
HLIF Harvest Canadian Equity Income Leaders ETF
23.3
Cash and other Liabilities
(26.2)
Please visit issuers’ website for most 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 ETFs held within HDIV invest primarly in large corporations. In addition to using the covered call strategy, the funds ensure diversification of your investments across various sectors. See below the list of the 7 ETFs that make up HDIV:
All the funds that make up HDIV are covered call ETFs offered by various issuers such as: Harverst, BMO, CI Financial and Horizons.
Video HDIV overview
HMAX – Hamilton Canadian Financials Yield Maximizer
HMAX ETF is a new fund offered by Hamilton ETF. The fund invests in the Canadian banking sector. This fund aims to provide an attractive dividend yield (target 13%) using a covered call strategy. The strategy consists of writing call options on (50% of the portfolio) to collect premiums and maximize monthly distributions.
Yes, Covered call ETF’s offer an excellent dividend yield. Their dividend yield is usually superior to ‘regular’ dividend ETF’s. Thanks to premiums collected issuing covered calls, the manager boost the fund distributions (Dividends plus Premiums), thus the dividend yield is usually high.
Some Covered Call ETFs use leverage to enhance returns even higher.
Do covered calls beat the market?
During market corrections, the answer would be probably yes. In essence, the covered call strategy is a convervative strategy that tends to forego profits for stability and income.
In a bull markets, covered call ETFs would have a lousy performance. A ‘regular’ dividend ETF would definitely perform better in bull market that a Covered call ETF.
If you are retired or close to retiring, a covered call ETF could be a better option for you. For young investors building wealth, covered call ETFs are not a good choice because they deprive their holders of growth perspective.
How risky is covered calls?
Covered call ETFs are generally low to medium risk funds. However, if the fund manager uses leverage, the fund would be considered medium to high risk.
Introduction to ZAG.TO
ZAG.TO is the ticker symbol for the BMO Aggregate Bond Index ETF, a widely recognized exchange-traded fund (ETF) in Canada. Managed by BMO Asset Management Inc., it aims to replicate the performance of the Bloomberg Barclays Global Aggregate Canadian Float Adjusted Bond Index. This ETF provides investors with broad exposure to the Canadian investment-grade bond market, encompassing a diversified range of government and corporate bonds.
Investment Strategy and Composition
ZAG.TO invests primarily in Canadian government and corporate bonds. By mirroring the Bloomberg Barclays Index, it covers various maturities and issuers, including federal and provincial governments and corporate entities across different sectors. This diversification aims to reduce risk while providing a steady income stream, making it an appealing choice for investors seeking stable, long-term returns.
Why Invest in ZAG.TO ETF?
Diversification: With a single transaction, investors gain exposure to a wide array of Canadian bonds, spreading out risk and potential volatility compared to investing in individual bonds.
Income Generation: ZAG.TO provides regular income through its holdings in interest-bearing securities. It’s particularly attractive for those looking for a steady income stream, such as retirees.
Low Cost: As an ETF, ZAG.TO offers a lower expense ratio compared to actively managed funds, making it a cost-effective option for bond exposure.
Liquidity: Being an ETF, it trades like a stock on the Toronto Stock Exchange, offering high liquidity and ease of entry and exit.
Historical performance ZAG.TO ETF
Performance and Risk Considerations
Like any investment, ZAG.TO comes with its set of risks and rewards. Bonds are generally considered lower risk compared to stocks; however, they are not immune to market changes. Interest rate fluctuations, inflation, and credit risk are vital factors that can affect bond prices and the ETF’s overall performance. Despite these risks, ZAG.TO has historically provided stable returns, making it a viable option for conservative investors and those looking for a balanced investment approach.
How to Invest in ZAG.TO ETF
Investing in ZAG.TO is straightforward. It’s available on most Canadian trading platforms, and investors can purchase it like any other stock or ETF. Before investing, consider consulting with a financial advisor to understand how ZAG.TO fits into your overall investment portfolio and aligns with your risk tolerance and financial goals.
Short term or Long term maturity Bond ETFs, which one to choose?
Characteristic
Short Maturity Bond ETFs
Long Maturity Bond ETFs
Duration of Bonds
Typically 1 to 5 years
Often exceeds 10 years
Interest Rate Sensitivity
Less sensitive to rate changes
More sensitive to rate changes
Risk Profile
Lower risk, more stable
Higher risk, greater volatility
Income Yield
Lower yields
Higher yields
Investor Profile
Capital preservation, lower risk
Income-seeking, higher risk tolerance
Suitability in Rising Rates
Preferred due to lower sensitivity
May result in higher losses due to sensitivity
Investors choose between short and long maturity bond ETFs based on their risk preferences, income needs, and views on interest rate movements. Short-term bonds offer stability and lower risk, while long-term bonds may provide higher yields but come with increased interest rate sensitivity.
Other popular Bond ETFs
Conclusion
ZAG.TO offers a practical solution for investors looking to diversify their portfolio with Canadian bonds. With its wide coverage of the Canadian bond market, regular income generation, and ease of access, it’s a staple in many investment portfolios. As with any investment, it’s crucial to perform due diligence and consider how it complements your investment strategy. Whether you’re a seasoned investor or just starting, ZAG.TO provides a foundational asset that can help stabilize and grow your investment portfolio.
Introduction:
Exchange-Traded Funds (ETFs) have become a staple for many investors, offering diversification, lower costs, and the ease of trading. Among these, the XLB ETF stands out as a popular choice for those looking to invest in the Canadian fixed income market. In this post, we’ll explore what the XLB ETF is, its composition, and why it might be a consideration for your investment portfolio.
What is the XLB ETF?
The XLB, or the iShares Core Canadian Long Term Bond Index ETF, is designed to provide investors with exposure to the performance of the Canadian long-term government and corporate bond market. Managed by BlackRock, one of the world’s leading asset management firms, the XLB tracks the performance of the FTSE Canada Long Term Bond Index.
XLB Fees
Actual Management Fee
0.18%
Actual Mgmt. Expense Ratio (MER)
0.20%
Composition and Characteristics:
The XLB ETF is a distinctive investment vehicle that offers a blend of diverse holdings and a long-term focus, making it an appealing choice for certain investors. This ETF is comprised of a variety of government and high-quality corporate bonds, providing a diversified fixed-income option. The diversification across different issuers and sectors helps mitigate specific risks associated with individual bonds.
As indicated by its name, the XLB ETF primarily focuses on long-term bonds, typically those with maturities greater than ten years. This longer duration is a double-edged sword; while it can offer higher returns, it also makes the XLB more sensitive to interest rate changes. This sensitivity is a crucial factor for investors to consider, as changes in interest rates can significantly impact the value of long-term bonds.
Regarding its yield and risk profile, the XLB ETF usually offers a higher yield compared to short-term bond ETFs. This higher yield is attractive to investors seeking more income from their fixed-income investments. However, this comes with a trade-off in the form of greater interest rate risk. The longer maturity of the bonds within the XLB means that its price is more susceptible to fluctuations in response to changes in interest rates. Consequently, while the XLB can be a valuable component in a diversified portfolio, investors should carefully consider their tolerance for interest rate risk and their long-term investment objectives when considering this ETF.
Why Consider the XLB ETF?
Diversification: For investors looking to diversify their portfolio beyond stocks or short-term bonds, the XLB can be an attractive option.
Potential for Higher Returns: Given its focus on long-term bonds, the XLB may offer higher returns in a declining interest rate environment.
Professional Management: Managed by BlackRock, investors benefit from the firm’s extensive research and risk management expertise.
Things to Consider:
Interest Rate Sensitivity: Due to its long-term nature, the XLB can be more volatile in the face of interest rate changes. Investors should be mindful of their risk tolerance and investment horizon.
Market Conditions: The performance of long-term bonds can be influenced by various factors, including economic outlook, inflation expectations, and central bank policies.
Other popular Fixed Income ETFs in Canada
XLB ETF historical performance
Conclusion:
The XLB ETF is a noteworthy option for those interested in the Canadian fixed income market, especially for investors seeking long-term bond exposure. As with any investment, it’s crucial to consider how it fits into your overall portfolio strategy and risk tolerance. Remember, diversification and understanding your investment are key to navigating the financial markets successfully.
Disclaimer: This post is for educational purposes only and should not be taken as financial advice. Always consult with a financial advisor before making investment decisions.
In this post, we will discuss one of the most popular Canadian Bank ETFs: ZEB BMO Equal Weight Banks Index. We will review ZEB’s historical performance and compare to similar ETFs in the market.
ZEB: Investment objective
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.
Updated daily – ZEB ETF
Banking sector perspectives 2024
In 2024, the Canadian banking sector continues to demonstrate robust resilience and stability, despite a backdrop of global economic uncertainties. This sector is characterized by strong balance sheets, prudent management, and a well-regulated environment, which together contribute to a solid foundation for growth. Investors can expect Canadian banks to maintain their status as reliable pillars of the economy, thanks to their diversified income streams and conservative lending practices.
Interest rate trends will play a significant role in shaping the sector’s performance this year. While rising interest rates can enhance bank profitability by widening net interest margins, they also pose challenges by increasing borrowing costs for consumers and businesses. Conversely, if rates decline, banks might experience compressed margins but could benefit from higher loan demand. Thus, the interest rate environment will be a critical factor for investors to monitor.
Technological innovation remains a key driver of competitiveness in the Canadian banking sector. Banks are investing heavily in digital transformation to improve operational efficiency and customer experience. These technological advancements are not only essential for retaining market share but also for capturing new growth opportunities in an increasingly digital world. This focus on innovation positions Canadian banks to continue thriving in a rapidly changing landscape.
In conclusion, the Canadian banking sector in 2024 offers a mix of opportunities and challenges. Its resilience, bolstered by strong regulatory oversight and technological investments, makes it an attractive area for investment. By closely monitoring interest rates, regulatory changes, and economic indicators, investors can navigate this sector with confidence, capitalizing on its strengths while being mindful of potential risks.
Based solely on historical performance, ZEB -BMO S&P TSX Equal Weight Banks Index had one of the best performance in the past 5 years. In addition, the fund pays around a 3% dividend yield. The management expense ratio is at 0.28%, which is one of the lowest among our list.
For income seekers, FIE Ishares CDN Fin Mthly Income offers an attractive dividend yield above 5%.
Please consult issuers’ website for up-to-date data
ZEB dividends
Amount
Adj. Amount
Ex-Div Date
Record Date
Pay Date
Declare Date
0.1400
0.1400
5/30/2024
5/30/2024
6/4/2024
5/23/2024
0.1400
0.1400
4/26/2024
4/29/2024
5/2/2024
4/19/2024
0.1400
0.1400
3/27/2024
3/28/2024
4/2/2024
3/20/2024
0.1400
0.1400
2/27/2024
2/28/2024
3/4/2024
2/20/2024
0.1400
0.1400
1/29/2024
1/30/2024
2/2/2024
1/22/2024
Introduction:
.Identifying a Canadian ETF equivalent to the Technology Select Sector SPDR Fund (XLK) presents a unique challenge. XLK concentrates on prominent U.S. tech companies, a focus not directly replicated in the Canadian ETF landscape. Yet, there are alternatives that offer similar sector exposure. Let’s delve into these options to find the closest match for Canadian investors seeking an XLK-like investment.
Understanding XLK’s Exposure:
The XLK ETF invests heavily in major U.S. technology companies, a sector known for rapid growth and innovation. It includes giants in software development, advanced hardware manufacturing, and comprehensive IT services. These firms are not just market leaders domestically but also hold significant influence on the global tech stage. Their products and services are integral to modern digital infrastructure, making XLK a reflection of contemporary tech advancements and trends. This focus positions XLK at the forefront of technological progress, appealing to investors seeking exposure to leading tech innovators.
XLK Canadian equivalent
One ETF that offers closer exposure to the tech sector, similar to XLK, is the Horizons NASDAQ-100 Index ETF (HXQ). While HXQ is not exclusively a tech ETF, it includes a significant proportion of tech stocks, similar to those in XLK. In addition to the Horizons NASDAQ-100 Index ETF (HXQ), Canadian investors looking for tech-sector exposure similar to XLK should consider TEC.TO and ZNQ.TO. Both ETFs offer unique approaches to tech investing.
Table showing the best XLK Canadian equivalent
HXQ.TO – Horizons NASDAQ-100 Index ETF
U.S. Market Focus: The Horizons NASDAQ-100 Index ETF (HXQ) closely tracks the NASDAQ-100 Index. This index is renowned for its concentration of top-tier U.S. technology firms. By investing in HXQ, Canadian investors gain exposure to industry giants such as Apple, Amazon, and Google. These companies are global leaders, driving innovation and growth in the tech sector. The NASDAQ-100 is not just tech-exclusive but is heavily dominated by tech stocks, making HXQ an attractive option for those seeking U.S. tech exposure.
Tech-Heavy Composition: While HXQ is not a pure tech ETF, its composition is significantly skewed towards technology stocks. This heavy weighting provides a tech-centric investment profile. The ETF includes companies across various sub-sectors within technology, such as software, hardware, and internet services. This diverse tech exposure allows investors to benefit from different growth drivers within the tech industry.
Currency Consideration: HXQ is traded on the Toronto Stock Exchange (TSX) in Canadian dollars (CAD). This is particularly advantageous for Canadian investors as it mitigates the currency risk associated with exchanging CAD to USD for U.S. investments. Additionally, trading in CAD simplifies the investment process and reduces the potential impact of currency fluctuations on returns. This feature makes HXQ an efficient way for Canadians to invest in a U.S. tech-heavy index while using their local currency.
TEC.TO – TD Global Technology Leaders Index ETF:
Global Tech Exposure: TEC.TO, managed by TD Asset Management, is designed to track the Solactive Global Technology Leaders Index. This gives investors exposure to a wide range of global tech companies, not just those in the U.S. It includes tech leaders from developed and emerging markets, offering a comprehensive view of the tech sector worldwide.
Diversity in Tech Companies: The ETF features a diverse portfolio, encompassing well-established tech giants and innovative emerging companies. This mix allows investors to tap into various aspects of the tech industry, from stable, well-known firms to high-growth potential startups. It’s a blend that aims to balance risk and opportunity.
Canadian Dollar Trading: TEC.TO is traded on the Toronto Stock Exchange in Canadian dollars. This aspect is particularly beneficial for Canadian investors, simplifying the investment process and reducing currency exchange concerns.
ZNQ.TO – BMO Nasdaq 100 Equity Index ETF:
U.S. Tech Focus: ZNQ.TO, offered by BMO, closely follows the NASDAQ-100 Index. This makes it an ideal option for investors seeking direct exposure to U.S. tech firms. The NASDAQ-100 is known for its heavy concentration of leading tech companies.
Similarity to XLK: The ETF’s holdings mirror many of the same companies found in XLK, offering a similar investment profile. This includes key tech players that dominate the U.S. market, making ZNQ.TO a close equivalent in terms of company exposure.
Local Currency Trading: Like TEC.TO, ZNQ.TO is traded in Canadian dollars on the TSX. This feature is advantageous for Canadians, allowing for investments without the added complexity of currency conversion.
Performance comparison
Performance comparison – XLK Canadian equivalent
Conclusion:
TEC.TO and ZNQ.TO, along with HXQ, provide Canadian investors with options to invest in the tech sector, each with its own unique characteristics. TEC.TO offers global tech exposure, while ZNQ.TO aligns closely with U.S. tech giants, similar to XLK. These ETFs are valuable tools for Canadians looking to diversify into technology while managing investments in their local currency.
When it comes to investing in ETFs, Canadians often consider QQQ and VOO. Both are popular, but they serve different purposes. Let’s break down the differences.
The Invesco QQQ ETF is a well-known investment vehicle that replicates the NASDAQ-100 Index. This index is a collection of 100 of the largest non-financial organizations listed on the NASDAQ stock market. Notable for its substantial tech orientation, it includes industry titans like Apple and Google, making it an attractive choice for those optimistic about the technology sector’s future. Investors are drawn to QQQ for its potential for substantial growth, which has been a consistent trend historically, thanks to the robust performance of the tech industry.
However, this tech-centric approach comes with its own set of risks. Since QQQ is heavily weighted towards technology stocks, any downturn in the tech sector could significantly impact the ETF’s overall performance. This sector concentration means that while the growth potential is high, so is the risk if the technology sector faces challenges. Additionally, the volatility inherent in tech stocks is another factor for investors to consider. These stocks can experience more significant price swings compared to the wider market, which could lead to larger gains, but also greater losses. Investors should weigh these aspects carefully against their individual investment goals and risk tolerance.
VOO: Vanguard S&P 500 ETF
The Vanguard S&P 500 ETF, known as VOO, mirrors the S&P 500 index, which encompasses 500 of the largest U.S. companies with large market capitalizations. This diverse mix spans various industries, providing a comprehensive snapshot of the American economy. The benefit of such diversification is a distribution of risk; by not being overly reliant on any single sector, VOO tempers the potential impact of sector-specific downturns. This broad exposure also tends to offer more stability. Since it includes large-cap stocks known for their size and established nature, VOO typically experiences less volatility, particularly when compared to more specialized sectors like technology.
However, the trade-off for this stability is the potential for lower growth rates. Generally, the expansive index doesn’t soar as high as more concentrated tech ETFs might during industry booms. Also, despite its diversification, VOO isn’t immune to market fluctuations. Broad market declines can still affect it, as it reflects the performance of the overall market. Investors interested in VOO should consider these factors alongside their investment goals and risk tolerance. It’s a balancing act between seeking stability through diversification and aiming for higher growth with associated risks.
Where’s it’s preferable to hold these ETFs
For Canadian investors considering where to hold ETFs like QQQ and VOO, it’s important to understand the tax implications and account types available.
Tax-Free Savings Account (TFSA): A TFSA is a great option for holding these ETFs because any gains from capital appreciation or dividends are tax-free. However, foreign dividends, such as those from U.S. companies, may be subject to withholding taxes, which you cannot recover in a TFSA.
Registered Retirement Savings Plan (RRSP): Holding U.S. ETFs like QQQ and VOO in an RRSP can be tax-efficient due to the tax treaty between Canada and the U.S. This treaty exempts U.S. securities in RRSPs from withholding taxes on dividends. This makes the RRSP an ideal place for these ETFs, especially for long-term growth and dividend reinvestment.
Non-Registered Account: Any dividends from U.S. ETFs in a non-registered account are subject to a 15% withholding tax, although this can be credited against your Canadian income tax. Capital gains are taxed only when realized, and at a favorable inclusion rate compared to income.
Registered Education Savings Plan (RESP) and Registered Disability Savings Plan (RDSP): These accounts have benefits similar to a TFSA in terms of tax on growth and withdrawals for their specified purposes. However, like TFSAs, they do not benefit from the U.S. tax treaty, so there is a withholding tax on U.S. dividends.
It’s essential for investors to consider their investment horizon, tax implications, and retirement goals when deciding where to hold their ETFs. Consulting with a tax advisor or a financial planner can provide personalized advice to align with individual financial strategies and objectives.
Performance and Fees:
QQQ can offer higher growth, but with greater risk. VOO is often seen as more stable. Fees for both are relatively low, but always check for updates as they can change.
Investor Considerations:
Investment Goals: Are you seeking growth or stability?
Market Outlook: Your view on the tech sector versus the broader market can inform your choice.
Risk Tolerance: Can you handle the ups and downs of a tech-heavy ETF?
Conclusion:
QQQ and VOO cater to different investment styles. QQQ offers a tech-heavy profile with high growth potential, while VOO provides a snapshot of the broader U.S. economy with diversified exposure.
Consider your investment strategy and consult with a financial advisor to find the right fit for your portfolio.
Introduction to REITs: Decoding the Basics
Real Estate Investment Trusts, commonly known as REITs, have become increasingly popular among investors seeking exposure to the real estate market without the complexities of direct property ownership. Understanding the basics of REITs is crucial for those looking to diversify their investment portfolio and capitalize on the stability and income potential inherent in real estate. In this post we will present the complete list of Reits in Canada with their pertinent financial ratios.
What is a REIT?
At its core, a Real Estate Investment Trust is a company that owns, operates, or finances income-generating real estate across various sectors. REITs provide a way for individual investors to invest in large-scale, income-producing real estate without having to buy, manage, or finance properties directly. These trusts can include a wide range of properties, such as residential buildings, commercial spaces, hotels, and even infrastructure assets like cell towers and data centers.
One distinctive feature of REITs is their requirement to distribute a significant portion of their income, usually around 90%, to shareholders in the form of dividends. This income distribution makes REITs an attractive option for income-focused investors, as they offer a steady stream of dividends derived from the cash flow generated by the underlying real estate assets.
List of REITS in canada
Complete List of REITs in Canada
Financial ratios
Types of REITs
REITs come in various forms, catering to different investment preferences and strategies. The primary types include:
Equity REITs: These are the most common type of REITs and focus on owning and managing income-producing real estate. Equity REITs generate revenue through rental income and property appreciation.
Mortgage REITs: Unlike Equity REITs, Mortgage REITs do not own physical properties. Instead, they invest in real estate mortgages and securities tied to real estate loans. Their income is derived from the interest on these loans.
Hybrid REITs: As the name suggests, Hybrid REITs combine elements of both Equity and Mortgage REITs. They may own and operate properties while also investing in mortgages or other real estate-related assets.
Advantages and Risks of REIT Investing
Advantages:
Investing in REITs, or Real Estate Investment Trusts, offers several key benefits. One of the most notable is the steady income stream they provide. REITs are known for their regular dividend payments, making them particularly appealing for those who prioritize stable cash flow and are focused on income generation. This feature of REITs is a significant advantage for investors looking for consistent earnings.
Another important aspect of REITs is the opportunity they offer for portfolio diversification. By investing in REITs, individuals gain exposure to the real estate market, which can be a strategic move to balance their investment portfolio. Diversification is crucial for managing risk and enhancing the overall stability of one’s investments.
In addition, REITs provide a level of liquidity that is not typically found in physical real estate investments. Since REIT shares are traded on the stock exchange, they can be easily bought and sold. This liquidity grants investors greater flexibility compared to owning physical properties, which can be challenging to liquidate quickly.
Lastly, REITs are managed by professionals with expertise in real estate. These managers take care of property management, leasing, and other operational tasks. This professional management means that investors can enjoy the benefits of real estate investments without needing to be involved in the day-to-day management of properties. This is a significant advantage for those who want to invest in real estate but lack the time or expertise for direct involvement.
Risks:
Investing in REITs, or Real Estate Investment Trusts, also comes with certain risks and considerations that investors should be aware of. One such risk is their sensitivity to interest rates. REITs can be particularly affected by changes in these rates. When interest rates rise, the cost of financing for REITs may also increase. This could potentially impact their profitability, as higher borrowing costs can reduce their net earnings.
Market fluctuations are another factor to consider. Just like any other type of investment, the value of REIT shares can vary based on overall market conditions. This includes economic downturns or specific volatility in the real estate market, which can influence the performance of REITs. It’s important for investors to be aware that their investment value can change and is not immune to market dynamics.
Additionally, there are property-specific risks associated with REITs. Some REITs specialize in certain types of properties or sectors, making them more vulnerable to risks in those specific areas. For instance, a REIT that focuses on commercial real estate might be more affected by economic downturns that impact business sectors. This specialization can lead to increased risk if the specific market sector faces challenges.
Finally, there are tax considerations to keep in mind when investing in REITs. While they do offer certain tax advantages, it’s crucial for investors to understand the tax implications of their dividends and distributions. The tax treatment of REIT income can be complex and varies based on individual circumstances, so it’s essential for investors to be informed about these aspects to manage their investments effectively. Understanding these tax implications is an important part of making informed investment decisions in REITs.
Analyzing Performance Metrics: A Guide for Investors
In the world of Real Estate Investment Trusts (REITs), scrutinizing performance metrics is key. Funds from Operations (FFO) serves as a vital indicator, representing the REIT’s cash-generating capabilities. Calculating the Net Asset Value (NAV) unveils the intrinsic value of a REIT’s assets, guiding investors on their true worth. Understanding Debt Ratios and Leverage is crucial, revealing the financial health and risk profile of a REIT. These metrics collectively empower investors, providing insights that aid strategic decision-making in navigating the dynamic landscape of REIT investments.
How to Invest in Canadian REITs: Practical Steps
Embarking on Canadian Real Estate Investment Trusts (REITs) necessitates strategic actions. Begin by Choosing a Brokerage Account—opt for one with a user-friendly interface and a comprehensive selection of REITs. Diversification is key, hence focus on Building a Balanced Portfolio. Select REITs across sectors, ensuring a mix of residential, commercial, and industrial assets to mitigate risk. Analyze historical performance, consider dividend yields, and stay informed about market trends. By taking these practical steps, investors can position themselves for success in the dynamic realm of Canadian REIT investments.
Introduction:
Ensuring a bright future for your child’s post-secondary education involves strategic financial planning, and a crucial component of that plan is selecting the right Registered Education Savings Plan (RESP) provider. In this comprehensive guide, we will explore in-depth the major RESP providers in Canada, including Big Banks, Wealthsimple, Questrade, and Justwealth. We’ll delve into the benefits of RESPs, how to choose the best provider, contribution limits, essential information on making withdrawals, and much more.
Best RESP Providers in Canada:
Big Banks and Credit Unions:
While the convenience of having an RESP with your primary bank is undeniable, it’s essential to explore the various offerings available in the market. Most big banks and credit unions provide RESP solutions, offering both self-directed and managed RESP options. The big five banks, for instance, allow you to open a self-directed RESP within their Direct Investing units. Alternatively, you can opt for a hands-off managed approach, where a financial advisor makes investing decisions based on your inputs.
Wealthsimple Managed RESP:
Wealthsimple, recognized as Canada’s leading commission-free brokerage, provides an RESP investment account that supports both individual and family plans. One significant advantage is that all government grants, including the Canada Education Savings Grant (CESG) and the Canada Learning Bond (CLB), are automatically contributed. The fee structure is transparent, with 0.5% for accounts under $100,000 in asset value and 0.4% for accounts over $100,000.
Wealthsimple Managed RESP
Details
Brokerage
Canada’s leading commission-free brokerage.
RESP Types Supported
Individual and family plans.
Automatic Government Grants
All government grants, including CESG and CLB, are automatically contributed.
Fee Structure
Transparent fees: 0.5% for accounts under $100,000 and 0.4% for accounts over $100,000 in asset value.
Questrade Managed RESP:
Questrade offers a managed investment service platform called Questwealth Portfolios, which includes RESP plans. Similar to Wealthsimple, government grants are automatically contributed. The fee structure varies from 0.25% to 0.20%, depending on the asset value. It’s crucial to note that any ETFs bought in the portfolio will have an incremental fee ranging from 0.17% to 0.22%.
Questrade Managed RESP
Details
Investment Service Platform
Questwealth Portfolios, includes RESP plans.
Automatic Government Grants
Similar to Wealthsimple, government grants are automatically contributed.
Fee Structure
Variable fees: 0.25% to 0.20%, depending on asset value. Incremental ETF fees (0.17%-0.22%) for portfolio ETFs.
Justwealth Managed RESP:
Justwealth stands out as the only Canadian online investment manager offering Education Target Date portfolios. These portfolios are designed to match the child’s age for university entry, automatically rebalancing their asset class weights over time. Fees for Justwealth are competitive, with 0.50% for accounts below $500,000 and 0.40% for accounts over $500,000 in asset value.
Justwealth Managed RESP
Details
Investment Manager
Canadian online investment manager.
Portfolio Design
Education Target Date portfolios, automatically rebalancing based on the child’s age.
Fee Structure
Competitive fees: 0.50% for accounts below $500,000 and 0.40% for accounts over $500,000 in asset value.
Benefits of an RESP:
RESPs offer a multitude of benefits that make them a smart choice for education savings:
Free government grants: The CESG provides a 20% matching grant on contributions up to $500 per year, with a lifetime maximum of $7,200.
Tax-deferred growth: Investments within an RESP grow tax-free, and taxes are only incurred when your child makes withdrawals during their post-secondary education.
Flexibility: RESP savings can be used for various educational expenses, including tuition, accommodation, books, and more. In case your child decides not to pursue post-secondary education, you have options such as using the funds for another child, withdrawing contributions, or transferring the money to your RRSP.
Choosing the right RESP provider requires careful consideration of several factors:
Reputation and trustworthiness: Look for providers with positive reviews, testimonials, and a proven track record of fulfilling financial obligations. Consider factors like customer service, transparency, and responsiveness.
Fees and charges: Assess the financial implications of various fees, including administration fees, trading fees, annual maintenance fees, contribution fees, and transfer fees.
Investment options: Consider your risk tolerance, growth potential, cost, time horizon, and the importance of diversification. Seeking professional advice from a financial advisor specialized in RESPs can provide valuable insights.
Customer service and support: Evaluate the provider’s responsiveness, accessibility through various channels (phone, email, live chat), knowledge of staff, prompt documentation processing, provision of educational resources, and a transparent issue resolution process.
Contribution Limit:
Understanding the contribution limit is crucial for effective RESP planning. The lifetime RESP contributions limit per beneficiary is $50,000. Contributions can be made once or over a period of up to 31 years after opening the account. To qualify for the maximum annual government grant of $500, a minimum annual contribution of $2,500 is required. Excess contributions beyond $50,000 per child are subject to a 1% penalty tax per month until withdrawn.
Aspect
Details
Lifetime RESP Contributions Limit
$50,000 per beneficiary. Contributions once or over up to 31 years after account opening.
Annual Government Grant
To qualify for the max $500 grant, a minimum annual contribution of $2,500 is required.
Excess Contributions
Subject to a 1% penalty tax per month until withdrawn if exceeding $50,000 per child.
Conclusion:
In conclusion, choosing the best RESP providers involves a thorough examination of reputation, fees, investment options, and customer service. Whether opting for the familiarity of a big bank or exploring alternatives like Wealthsimple, Questrade, or Justwealth, aligning the chosen provider with your financial goals is paramount. A well-chosen RESP provider not only helps you effectively save for your child’s education but also maximizes government grants and provides tax benefits. As you embark on this financial journey, consider the long-term implications and make an informed decision that aligns with your vision for your child’s future.
For this post, we will share the list of US stocks that pay monthly dividends! All these stocks are American companies (mid or large cap) with a minimum market capitalization of $300M. I excluded small caps stocks, because they are generally more risky. You will also find at the end of this post my top picks, 6 monthly dividend paying stocks with a track record of increasing their dividends.
Monthly dividend stocks are a great way to generate a regular passive income. As you can see below, the list is dominated by Reits (real estate investment trusts). For each company, we will provide the dividend yield, the pay out ratio and the dividend growth over the past five years.
The dividend payout ratio is the amount of dividend distributed by a company divided by the total earnings. For example, a company makes a profit of $ 100 and pays $ 40 in dividends. Its payout ratio is 40%.
If the ratio is high, the company pays almost all of its profits in dividends. There will be little money left in the coffers to innovate or expand to new markets;
It is preferable to invest in a company where the dividend payout ratio is low or medium. The reasoning is that these companies will have money set aside to invest in new projects and thus create growth;
Another variation of payout ratio (Trailing div / Earnings) is the payout ratio to cash (Div / Free cash flows). Earnings can be easily manipulated, so analysts use the payout ratio to cash to assess the safety of dividends better. The website ‘Marketbeat‘ provides the payout ratio to cash for Canadian stocks.
Focus on total return
When one wishes to invest in a stocks that pay monthly dividends, it is essential to pay attention to their performance and growth potential. The most common mistake is to invest in stocks with high dividend yields. This strategy is risky. Here’s why :
• A stock can pay a high dividend yield, but is it sustainable? Some companies have a payout ratio that is close to and even exceeds 100%. They manage to post desirable dividend yields, but if we look at the growth prospects, it’s almost nil;
• Investors sometimes shun companies for lack of growth potential or actual risk of lower revenues in the future. These companies experience a drop in the price of their shares, and this causes the dividend yield to become abnormally high. Sooner or later, these businesses will have to cut their dividend.
