A few weeks ago, both the Intelligent Speculator and I wrote 2 articles comparing ETFs to Index Mutual Funds (you can read why ETFs are superior to mutual funds by IS or why index mutual funds may be the right solution sometimes, written by me. However, there is something that bugs me about ETFs: They follow the index but they don’t pay dividends! Dividend stocks have always been popular and we see a growing interest for them with the comeback of major Canadian Banks as money makers (they always made money but for some weird reason, some crackpots from Bay Street thought the other way a year ago 😉 ).
So, I pursued my quest to find Canadian ETFs that pay dividends… and finally found them! After writing about the top 10 Canadian Dividend Stocks and the Best Canadian Dividend Stocks, I am glad to now present the top dividend paying ETFs in Canada!
Why invest in ETFs that pays dividends?
There are a lot of people that love dividends. There are 2 major reasons why so many investors love them.
#1 they are usually issued by very stable companies which mean less volatility in a stock portfolio.
#2 they pay quarterly income, which is great for revenue seekers.
However, investing in dividend stock is nothing different than regular stock picking. When buying a dividend stock, you concentrate your risk in one company. Therefore, you would need enough money to buy at least 5 to 10 stocks to be more diversified. Unfortunately, the stock price of most dividend paying companies is between $30 and $60. Therefore, you need a lot of money to build a strong dividend portfolio.
With an ETF that pays dividends, you don’t have quite the problem of risk anymore. Since ETFs group several dividend stocks, you can benefit from high paying dividend stocks without being limited by the size of your portfolio.
Another great advantage you get with ETFs is their low MERs. Most dividend paying ETFs show MERs of about 0.50% to 0.60%, which is much lower than the regular 1.50%-1.60% MERs fee with mutual funds (unfortunately, I was unable to find a dividend index mutual fund, so the choice of picking dividend paying ETFs is obvious).
You can find a list of Canadian ETFs that pay dividends here:
|TICKER||NAME||PRICE (10-15-09)||RETURN YTD||DIVIDEND YIELD|
|XTR||ISHARES CDN S&P/TSX INCOME||10.87||33.58%||9.12%|
|FIE/A||CLAYMORE CN FINCL MNTH I ETF||6.79||26.92%||7.75%|
|XRE||ISHARES CDN S&P/TSX CAP REIT||10.59||36.4%||7.33%|
|CPD||CLAYMORE S&P/TSX CDN PFD-COM||16.47||20.07%||5.12%|
|CYH||CLAYMORE GLBL MONTHLY AD-COM||15.1||41.1%||4.93%|
|CDZ||CLAYMORE S&P/TSX CDN DVD ETF||17.89||30.47%||4.93%|
|XLB||ISHARES CDN DEX LONG TERM BO||19.53||5.78%||4.80%|
|XCB||ISHARES CDN DEX ALL CORPORAT||20.14||12.37%||4.63%|
|XBB||ISHARES CDN DEX UNIVERSE BON||29.52||4.73%||4.38%|
|CBD||CLAYMORE BALANCED INCOME-COM||17.95||22.48%||4.26%|
|CLF||CLAYMORE 1-5 YR LADDERED GOV||20.48||0.62%||4.12%|
|XDV||ISHARES CDN DJ CAN SEL DVD I||18.44||32.14%||4.09%|
|XGB||ISHARES CDN DEX ALL GOVERNME||20.47||0.78%||4.05%|
|CGR||CLAYMORE GLB REAL EST ETF-CM||15.43||10.57%||4.02%|
|XCV||ISHARES CDN VALUE INDEX||18.16||39.18%||4.01%|
|XSB||ISHARES CDN DEX SHORT TERM||29.18||4.00%||3.97%|
|XFN||ISHARES CDN S&P/TSX CAP FINL||21.90||42.16%||3.89%|
|CEW||CLAYMORE EQ WEIGHT BANC-COM||7.05||43.66%||3.88%|
|XMD||ISHARES CDN S&P/TSX COMPL IN||17.45||38.00%||3.73%|
|XCS||ISHARES CDN S&P/TSX SMALLCAP||13.36||48.01%||3.23%|
|XIC||ISHARES CDN S&P/TSX CAP COMP||18.20||31.99%||2.77%|
|CLO||CLAYMORE OIL SANDS SECTR-COM||17.35||61.09%||2.75%|
I really like iShares since they hold 70% of their fund in Canadian Banks and show a 3.9% dividend yield. Since banks are solid, they are nothing to be fear. Another interesting point is that they have been amputating their profits with provisions for losses that will perhaps never happen. Therefore, when accounting rules prevail, they will have to remove them in a few years and “realize” surging profits crossed with a much better economy. What do you think will happen? Canadian bank stocks should soar again 😀
My bonus is coming pretty soon (January) and I am seriously thinking of investing in Canadian ETFs that pay dividends in my TFSA 😉
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