October 26, 2009, 5:00 am

Canadian ETFs That Pays Dividends – Am I in Heaven?

by: The Financial Blogger    Category: Investment, Market and Risk,Trading
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heavenA 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:

TICKERNAMEPRICE (10-15-09)RETURN YTDDIVIDEND YIELD
XTR ISHARES CDN S&P/TSX INCOME10.8733.58%9.12%
FIE/A CLAYMORE CN FINCL MNTH I ETF6.7926.92%7.75%
XRE ISHARES CDN S&P/TSX CAP REIT10.5936.4%7.33%
CPD CLAYMORE S&P/TSX CDN PFD-COM16.4720.07%5.12%
CYH CLAYMORE GLBL MONTHLY AD-COM 15.141.1%4.93%
CDZ CLAYMORE S&P/TSX CDN DVD ETF17.8930.47%4.93%
XLB ISHARES CDN DEX LONG TERM BO19.535.78%4.80%
XCB ISHARES CDN DEX ALL CORPORAT20.1412.37%4.63%
XBB ISHARES CDN DEX UNIVERSE BON29.524.73%4.38%
CBD CLAYMORE BALANCED INCOME-COM17.9522.48%4.26%
CLFCLAYMORE 1-5 YR LADDERED GOV20.480.62%4.12%
XDV ISHARES CDN DJ CAN SEL DVD I18.4432.14%4.09%
XGB ISHARES CDN DEX ALL GOVERNME20.470.78%4.05%
CGR CLAYMORE GLB REAL EST ETF-CM15.4310.57%4.02%
XCV ISHARES CDN VALUE INDEX18.1639.18%4.01%
XSBISHARES CDN DEX SHORT TERM29.184.00%3.97%
XFN ISHARES CDN S&P/TSX CAP FINL21.9042.16%3.89%
CEWCLAYMORE EQ WEIGHT BANC-COM7.0543.66%3.88%
XMD ISHARES CDN S&P/TSX COMPL IN17.4538.00%3.73%
XCS ISHARES CDN S&P/TSX SMALLCAP13.3648.01%3.23%
XIC ISHARES CDN S&P/TSX CAP COMP18.2031.99%2.77%
CLO CLAYMORE OIL SANDS SECTR-COM17.3561.09%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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Comments

@TFB: what’s your take on dividend aristocrats and achievers where the focus is on dividend appreciation rather then just on yeild alone?

@TFB: where can I find out on the ETFs datasheet if it will pay dividends or not? any reason why XIC would pay dividends but not XIU?

Personally, I am reluctant to invest in XTR due to taxation changes in income trust starting in 2011. Not really sure though how this will affects XTR in the near future.

by: The Financial Blogger | October 28th, 2009 (9:22 am)

@ Brian: if you are looking to get revenue, watching closely dividend appreciation should be one of your main concern. If a company is able to increase its dividend on a steady basis it shows good cash flow management and growth within the company. If you keep your stock long enough, your dividend yield will be pretty awesome!

@Antonyb: I agree with you, there will be a huge impact on this ETF, i don’t think it worth investing in it right now even with the high yield (what is going to happen to the ETF value in 2011???).

@ ETFn00B: the dividend yield is at the end of the chart (last column). You need to look at the ETF composition and description if you want to know which one is paying dividends or not. XIU is keeping the dividend (same as index mutual funds). this is why you need to take a closer look before buying. Those ETF’s are the biggest in the Canadian market this year in term of market capitalization.

by: John L. Grant | November 2nd, 2009 (6:38 pm)

Great website! The etf dividend yield information is much-needed, especially in the current “low yield” environment!

One question: Are your yield stats annualized? Tsx.com provides updated yields at the end of the trading day, and their current numbers,seem to be different from yours. (Although the rankings would appear to be about the same.)

Thanks,

John Grant

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by: The Financial Blogger | November 3rd, 2009 (9:23 pm)

John,
ETF are reported with year to date yield.

Stats were taken from a professional trading software. I trust them 😉 but they probably differ because of the dates 😉

[…] Financial Blogger presents The Financial Blogger » Blog Archive » Canadian ETFs That Pays Dividends – Am I in Heaven? posted at The Financial Blogger, saying, “There are a lot of people that love dividends. […]

[…] subscribe to, and noticed that The Financial Blogger had an article back on the 26th which detailed ETF’s which paid a dividend! I truthfully didn’t even know such a beast existed, but I immediately knew that I had found […]

[…] Financial Blogger presents The Financial Blogger » Blog Archive » Canadian ETFs That Pays Dividends – Am I in Heaven? posted at The Financial Blogger, saying, “There are a lot of people that love dividends. […]

Hi there,
Is there a free ex-dividend calendar for Canadian stocks one can get somewhere?

Ben

by: The Financial Blogger | November 26th, 2009 (8:16 pm)

Ben, this is a great idea! I’ll post one at the beginning of each month!

thx for your feedback!

now imagine living in Canada and buying them in a tax free account with zero commission….as close to heaven as it gets….i am buying fie.to with same outlook on the banks