I recently took at took at Vanguard’s High Dividend Yield ETF VDY vs iShares High Yield ETF XEI. Those are both very solid options in the dividend space. I would give the nod to the more concentrated VDY. As per the previous post that fund is concentrated in Canadian financials and it largely takes a pass on energy exploration and production. Today we will take a look at the Invesco Dividend ETF – PDC.
As a backgrounder please have a read of the VDY vs XEI post.
And in the spirit of the season the ‘is it my favourite’ is a nod to our family favourite Christmas movie – Elf. Of course in the mix of holiday classics you’d also have to include Bad Santa and Home Alone.
Now I’m not sure if Invesco’s PDC will turn out to be my favourite, but it’s in the running. Smiling is Buddy’s favourite and certainly PDC has shareholders smiling. If juicy dividends and generous total returns are your favourite that fund is checking off those boxes.
Why are PDC shareholder’s smiling?
First off the total return history is impressive.
We see it beat the TSX Composite in the 1-year to 5-year time periods. More importantly we see the underlying benchmark the NASDAQ Select Dividend Index with a generous beat in the 10-year period.
From the inception period for the ETF of June of 2011 the out-performance vs the benchmarks is meaningful. The top Orange line is the return of the NASDAQ Index. The blue line below the NASDAQ line is the PDC ETF returns. We see the returns reduced by the fees and the tracking errors.
The benchmarks beneath the PDC returns is the TSX 60 and the TSX composite. The TSX 60 is in red, outpacing the returns of the the composite.
Here’s a link to the fund fact sheet for the Invesco Canadian dividend ETF – PDC.
Dividend Growth and High Yield.
The dividend recipe here is the combination of a dividend growth history of at least 5 years, and that juiced yield. You may remember we previously looked at dividend growth by way of those Canadian Dividend Aristocrats. PDC out-performs its dividend growth cousin iShares CDZ.
The top holdings and sectors.
The sector weightings appear to be the ‘difference maker’ in Canada. We know that the Canadian stock market is not very well diversified to say the least. And there can be considerable concentration in cyclical sectors such as energy and materials. Invecso PDC seems downright sensible.
I don’t like it because it outperformed. I like it because of the sector weights and because of the top holdings. That was the criteria I used when I selected Vanguard’s VDY for my wife’s RRSP account. And yes I accepted and embraced that concentration in financials. Hey, the big Canadian banks have been paying (and mostly growing) dividends well, since before Canada was Canada. I’m greedy and kinda conservative that way.
Once again we see that concentration in financials, pipelines, utilities, telco’s and a more generous allocation to REITs compared to the TSX composite. We see the Brookfield’s well represented in the fund.
What about those big dividends?
The dividends held up in Canada’s energy-inspired correction of 2015 and into 2016. Here’s a comparison vs VDY. The dividend income is based on a $10,000 investment. There is another monthly payment on the way for both funds in 2019.
- PDC Income is Portfolio 1.
- VDY Income is Portfolio 2.
The chart is shown without dividend reinvestment. PDC was able to grow the dividend modestly through the correction, while VDY offered a dividend cut. Certainly that’s only one move through a market correction, but that might be a strong sign of potential dividend and collective financial health.
Bigger dividends. Greater dividend sustainability. What’s not to like? Throw in that total return history and that might make it a favourite of many investors.
Thanks for reading and happy holidays. What are your thoughts on Invesco’s dividend ETF – PDC?
What’s your favourite?
Dale
Great article. Again. Have you ever checked out Proshares Ultra 500 S and P ETF ( SSO). The returns are shocking to say the least
Thanks Darren I will do 🙂
Happy holidays, Dale
What are your thoughts on the MER? Seems a little high. Offset by strong returns?
Happy Holidays
Damon
I am sure you remember David Stanley who is a big advocate of the BTSX plan. Basically a Canadian version of Beating the DOW.
Buy the top dividend performers of the TSX60 and rebalance every year
I would love to see you do a comparison to the PDC.
Thanks Robert for the idea, I’ll try and give that a go. On returns though, the PDC has it. The oligopoly sectors plus REITs are tough to beat.
Dale
Returns, net of Fees, are impressive. Thanks for narrowing down my choice of which fund in this category to invest in my rebalancing strategy
PDC looks great and would be a good substitute for my funds but I am OK with iShares XDIV and BMO ZWC in my cash account.
XDIV pays 4.33% but has too much concentration in financials at 60%. I forgive that because the MER at only .11% is a bargain.
ZWC pays 6.95% with a MER of .72% and an excellent sector allocation with only 33% in financials.
The combination works for me as a retired guy living off the dividends of my investments. I use other ETF’s in my TFSA and 2 RRIF’s.
Thanks Marco, I really like that XDIV as well. I’ve reviewed or mentioned that, as that is the MSCI index/indices that is used by Tangerine. I was looking at that again this morning, coincidentally.
And ya that’s a big juicy payment from ZWC. I am doing some research on that fund and approach. I’ll be back with a dedicated post.
We’ve probably chatted about this before, you have some US in the mix?
Dale
Yes Dale – I’d like to see your take on the BMO covered call ETF’s as I have the Canadian, US, Utilities and European CC ETF’s from BMO in my portfolio.
Yes, I have 20% of my investments in bond ETF’s, 15% in pref ETF’s, 5% cash, 30% Canadian equity high dividend ETF’s and 15% in both US and International high dividend ETF’s.
My wife is retiring next summer at 53 with a reduced teacher pension but her investments (XDIV, XDG, ZPR and ZAG) will bring her another $1250 per month in dividends.
I confess to being a bit of a dividend doubter or perhaps a dividend skeptic. I suppose my thinking has been shaped by the arguments of Ben Felix and Dan Bortolotti of PWL Capital. I won’t repeat them here because I’m sure you know them all. I would caution against taking a very large position in dividend-focused ETFs. It is interesting to note that Vanguard published an article entitled “An analysis of dividend-oriented equity strategies. Readers can find it here:
https://personal.vanguard.com/pdf/ISGADOS.pdf
The conclusion is that investors would do well to focus on total return. Why then does Vanguard sell dividend-focused ETFs? Simply because there is a market for them. There is a behavioural reason at play. Many investors prefer income. Even though a dollar is a dollar whether it comes from dividends of the sale of shares, many investors prefer to limit their spending to the income generated by their portfolios. Having said all that, there is no denying the strong performance of dividend strategies in the past. So what’s my solution? Well, I sold XEI, XDIV and XDU in order to focus on total return. I said I was a dividend doubter. I am not a dividend denier. Recently, like the lost sheep of the Bible, I have come back into the fold, not entirely of course, but I have at least placed one hoof in the fold. I bought back XDIV and XDU simply because I was afraid not to own them. For some years now I have used the Core Portfolio from iShares and both of those ETFs are recommended. My solution is to hold XIC and XDIV in equal portions. Similarly, I now hold equal amounts of XUU, XUS and XDU. Once again, I congratulate you, Dale, on a very helpful blog. You are doing investors a great service.
Hi David, thanks for the kind comments. Dividends have many benefits. They can matter, or not. It all depends on one’s strategy and how they construct their portfolio and for what purpose. There’s not much more important than behaviour and we know that the dividends can help so much in that regard. There’s so much positive reinforcement on a regular basis.
Dividends can work like a divining rod as well, they can find different factors and kinds of companies. In Canada it will often find out performance. You likely read this article and the end of the dividend debate, ha …
https://cutthecrapinvesting.com/2019/12/07/putting-an-end-to-the-dividend-debate-on-weekend-reads/
And that simple BTSX that beats by buying the highest 10 yields in the TSX 60 each year.
And of course a dividend in hand is much different than a share buyback in many respects in a market correction or in regard to overall portfolio management. The PWL boys have it wrong on a few fronts is all. But always, to each his or her own.
Thanks again for your thoughtful comment and for sharing your experience.
Dale
Excellent post, as always, Dale!
I have been going with a one fund allocation approach with XGRO for simplicity but would be interested in learning more about sector ETFs, especially dividend type ETFs like the one you reviewed.
Not sure if you have such a post already, but it would be interesting to compare all (maybe too many), larger dividend type ETFs and like one poster mentioned above, compared to the Beat the TSX approach and see how they perform.
Thank you!
Thanks Lawrence, yes I have had that suggestions a few times. I’ll look at the BTSX and see how that compares to certain high yield funds and the also the approach of some of the dividend writers on the Globe and on MoneySense.
I love that VGRO of course. Great option 🙂
Thanks for stopping by,
Dale
A suggestion for a post , who all these recommendations have fared , including this years collapse… ZWC, PDC, HAL…and there was another one.
Hi Bruce, keep in mind that no review is a recommendation. Each investor must do their research and then select the funds that works best within their total portfolio construction, and for their situation, taking into account risk tolerance, tax situation and more.
I have been doing a running comparison of the Canadian Dividend ETFs. Here’s the link.
https://cutthecrapinvesting.com/2020/06/11/checking-in-on-the-canadian-dividend-etfs-and-the-benchmarks/
And recently I updated a look at the popular BMO Low Vol ETF …
https://cutthecrapinvesting.com/2020/08/05/a-look-under-the-hood-of-bmos-low-volatility-etf-rebalancing/
Dale
enjoyed your info