There are two dividend ETF portfolios on Cut The Crap Investing. Many investors enjoy a dividend focus. Some investors will simply shade in a dividend ETF or two in concert with their core holdings. We’ll have a look at the dividend aristocrat portfolio and the returns for 2019.
Once again it was an incredible year in 2019. Please have a read of the returns of the core ETF portfolios on Cut The Crap Investing.
From that post …
Stock to bond ratio summary
- 100% stocks = 21.25%
- 75% stocks = 18%
- 60% stocks = 15.7%
- 40% stocks = 12.5%
It was tough to go wrong in 2019, most everything worked. Even bonds.
So how did a dividend focus fare in 2019? Keep in mind that a one-year snapshot does not tell us much. Investing is a long-term marriage. We need to stay focused on our strategy, and it can take many years even a market cycle or two for an approach to ‘do its thing’. Like marriage, we need to stay committed through thick and thin.
We can’t break up in market corrections.
The dividend aristocrats.
For a backgrounder you can have a read of this post that outlines the Canadian dividend aristocrats. The gate keeper for a dividend growth approach is that dividend growth history. Canadian companies must have increased their dividends every year for 5 years running. In the US an aristocrat must have a 25-year history of dividend increases. Now that’s dividend royalty. You will find many self directed investors devoted to those US dividend aristocrats. They will often own enough of the individual stocks.
The Canadian aristocrats have a history of outperforming the TSX Composite. But as always, past performance does not guarantee future returns.
Here’s a snapshot of the performance in the current bull run. The chart is courtesy of portfoliovisualizer.com.
The Canadian dividend aristocrats ticker CDZ is Portfolio 1.
The TSX Composite ticker XIC is Portfolio 2.
The out-performance for that period is 1.7% annual.
In 2019 CDZ offered a beat of the TSX Composite. Figures are rounded.
- Aristocrats 26%
- Composite 22.9%
The US Aristocrats.
This is supposed to be a boring stodgy grouping, but the US aristocrats have been outperforming the S&P 500 funds through the record breaking US bull market run. But many investors (myself included) own those aristocrats for the potential of lesser volatility or draw down in a major market correction. The last major market correction is a distant memory for most.
The US dividend aristocrats are offered in ETF form courtesy of ProShares and by way of the ticker NOBL. For US stock comparison we’ll use iShares S&P 500 IVV.
- NOBL 27.4%.
- IVV 31.4%
In equal weight fashion of Canadian and US Aristocrats (many would write that is not a good idea) the return for 2019 would be 24.1%. That figure would adjust for the strong Canadian dollar, up 5.1% over the US Dollar in 2019.
The dividend aristocrat portfolio – North American focus.
- Canadian Aristocrats 26%
- US Aristocrats 22.3%
- 50/50 – 24.1% CAD
Going global.
For an International addition we might use Vanguard’s VYMI. While not an aristocrat focus, the fund does offer more ‘complete’ international exposure as it includes developing markets. That is a US Dollar fund. And as an International fund it includes Canada at 7%. You’d factor that into your total geographic allocation.
- VYMI 18.7%
iShares offers an International dividend growth fund IGRO that also includes Canada. In fact, you’ll see Canada’s top 3 banks show up in the top 10 holdings. I will look into the tax considerations. That is a US dollar fund.
- IGRO 25.8%
For Canadian Dollar International dividend options you might consider BMO’s International Dividend ETF ZDI. That fund does not include Canadian holdings. That index is also available in a currency-hedged version ZDH.
- ZDI 13%
- ZDH 20.2%
For argument sake we will construct an equal weight Canada/US/International Dividend growth portfolio. Think of it as the dividend aristocrat portfolio with a twist.
- Total return 22.8%
In the above example I used the BMO ZDH.
What goes where?
Please ensure that you understand all tax considerations. And learn ‘what goes where’ with respect to account types. You may benefit from the expertise of an advice-only planner.
Thanks for reading. Please add your thoughts and suggestions in the comment section.
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