This week I penned on the US Dividend Aristocrats. That’s a group of S&P 500 constituents that have increased their dividends every year for 25 years (or more). In Canada, we’re not so picky, the Canadian Aristocrats are companies that have increased their dividends for 5 years or more.
For a backgrounder on these Canadian dividend growers you can hit the iShare’s site and have a look at the Canadian Dividend Aristocrats ETF CDZ.
From the fact sheet – September 2019. The MER is .66%. The Trading Expense Ratio was listed as .03% with total fees at .69%. Here is the sector breakdown and the top ten holdings. As we saw in BMO’s Low Volatility Fund there is more meaningful exposure to the utilities and REIT sectors. Financials are more muted at less that 22%, compared to the more financial-dependent TSX 60 or TSX Composite.
The index is not cap weighted. We see the weightings distributed somewhat more ‘evenly’ among its constituents compared to those cap weighted XIUs and XICs. The Aristocrats are weighted by yield, as per the prospectus. The energy sector is represented almost exclusively by way of the pipelines that are very generous dividend payers – compared to the more cyclical energy producers.
S&P/TSX Canadian Dividend Aristocrats Index The S&P/TSX Canadian Dividend Aristocrats Index is designed to measure the performance of S&P Broad Market Index (BMI) Canada (“S&P Canada BMI”) constituents which have followed a managed-dividends policy of consistently increasing dividends every year for at least five years. Methodology The Index is weighted by indicated annual dividend yield. The “Dividend Aristocrat” constituent universe is reviewed every January. The Index methodology incorporates concentration limits to prevent any stock from being more than 8% of the Index weight and to enhance Index basket liquidity at the annual rebalancing.
The trailing yield for the fund is 4.18%. It is a generous monthly dividend payer. The PE ratio is 13.99, indicating that there is certainly very generous earnings supporting the generous dividends. Those eligible dividends can look quite ‘smooth’ in their dividend income appreciation.
That said, given the index methodology the total income for the fund is incredibly ‘lumpy’. Capital gains and return of capital can skew the income picture. Ensure that you understand the tax implications as well.
The Total Returns Picture
If we look at the time period from CDZ inception we see some significant outperformance by way of the Canadian Aristocrats. Here’s CDZ …
And here’s iShares TSX Composite XIC.
For the period the Aristocrats total return (with dividend reinvestment) was 128% whereas the TSX composite ETF delivered 99.2%. What is helping to deliver that alpha? Greater earnings? Greater stability? Greater growth? Or perhaps that sector allocation? All of the above? I’ll be back with a future post after I dig a little deeper into that subject.
And as always past performance does not guarantee future results.
Should you invest in the Canadian Dividend Aristocrats?
That’s a question that is sure to come up, just as it did after the look at BMO’s Low Volatility offering. Of course, I’ll have to leave that up to you and your comfort level. To mitigate the concentration risks, I am guessing that many would suggest that you could use CDZ to supplement a core large cap Canadian fund. You might slightly boost the overall income and smooth out some of that Canadian sector over-concentration. Other investors may certainly be comfortable using the Aristocrats as their core Canadian position.
Building a stock portfolio
By building your own stock portfolio you can save on management fees and manage the portfolio turnover and income. You might be more of a buy and hold and add investor, you can be more passive than an index fund. For any additional evaluation you might investigate Dividend Stocks Rock. You can combine a paid service with the index criteria.
Here, your questions are answered on the RDSP . Please share that post and site with anyone you know who seeks information on the registered disability savings program.
I really like this post from our friend, Mike, The Dividend Guy, here’s Retirement vs FIRE: You Got It All Wrong And Both Your Ideas Suck. I linked to that article this week in my Seeking Alpha post that looks at FIRE and how much it might really take to retire early.
On that same subject Mark Seed looks at the six phases of financial independence.
And this week in the Financial Post Jonathon Chevreau looked at how investors can navigate the over-crowded ETF market. I was happy to provide a quote or two. I worked on that while taking the train back to London from Edinburgh. At the time Jon was in South Africa. #workfromanywhere
Milliondollarjourney offered a mid-week money links post.
Rob Carrick suggests that you should try these retirement calculators. That includes the PERC (Personal Enhanced Retirement Calculator). On that site they suggest, for best results to read Retirement Income For Life: Getting More Without Saving More.
From Boomer and Echo here’s a nice common sense post – Retirement Planing Options To Help You Reach Your Retirement Goals.
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