Review of XEI – Ishares S&P TSX Comp High Div Index ETF

What’s the objective of XEI ETF?

The iShares S&P/TSX Composite High Dividend Index ETF (XEI) is designed for investors seeking steady income and growth through exposure to Canadian high-dividend stocks. XEI is a Canadian-focused ETF that aims to track the S&P/TSX Composite High Dividend Index, providing exposure to some of Canada’s top dividend-paying companies across various sectors. Here’s a breakdown of why XEI might be an attractive option for Canadian investors, including its methodology, benefits, and key features.

Why Canadian Investors Should Consider XEI

XEI is well-suited for Canadian investors looking for consistent income through dividends as well as long-term capital appreciation. Here are some primary reasons why XEI may appeal to these investors:

Monthly Dividend Payments: XEI offers monthly distributions, providing a regular income stream that can be attractive for retirees or investors seeking frequent cash flow.

High Dividend Yield: By focusing on high-dividend stocks, XEI generally delivers a higher-than-average yield, making it appealing to income-focused investors.

Sector Diversification: Unlike funds that focus on a single sector, XEI diversifies across major industries in Canada, helping to reduce the impact of downturns in any one sector.

Cost-Effective: With a management expense ratio (MER) of approximately 0.22%, XEI provides a low-cost way to access high-dividend stocks without the need for individual stock selection.

Tax Efficiency for Canadians: Since XEI holds Canadian stocks, it’s tax-efficient for Canadian investors in non-registered accounts, as dividends benefit from the Canadian dividend tax credit.

Best For Whom?

XEI is best suited for:

Income-Focused Investors: Those seeking steady, predictable cash flow through dividends will benefit from XEI’s monthly payouts.

Long-Term Investors: XEI’s focus on high-quality, dividend-paying stocks in Canada supports long-term growth.

Retirees: Monthly dividends and sector diversification can be particularly attractive for retirees looking for a stable income source.

Canadian Tax-Conscious Investors: Canadian investors in non-registered accounts can benefit from tax savings on dividends through the Canadian dividend tax credit.

S&P/TSX Composite High Dividend Index: Structure and Methodology

The S&P/TSX Composite High Dividend Index selects companies from the broader S&P/TSX Composite Index that have strong dividend yields and meet liquidity requirements. Here are some of the key characteristics of this index:

Selection Criteria: Companies are selected based on market capitalization, liquidity, and the stability of dividend payouts. Each stock must represent a minimum weight of 0.04% within the index.

Sector Weight Limits: Each sector is capped at 30% to prevent overexposure to any single industry, ensuring diversification across Canadian market sectors.

Stock Weighting: Each company in the index is limited to a maximum of 5% to maintain a balanced approach and avoid concentration in a few large-cap stocks.

Rebalancing: The index is rebalanced quarterly to adjust for any changes in the composition or weighting of stocks.

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XEI ETF vs VDY vs XDV

In this section, we will compare XEI with Both XDV – Ishares Canadian Select Div Index and VDY Vanguard FTSE CDN High Div Yld Index. See tables below:

Table 1: AUM and MER

Looking at the management fees, VDY and XEI are attractive. XDV stands at 0.55% which is the highest MER among our three contenders.

Table 2:  Performance comparison and analysis

Performance updated daily

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Analysis

Performance:

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.

Table 3: Dividend schedule and Beta

Source:, 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.

XEI dividend history

XEI pays dividends on a monthly basis. Please refer the last column of the table below for the amount of dividend distribution.

XEI ETF holdings

XEI ETF Sectors allocation