Many investors will embrace the almighty dividend for many reasons. Most investors simply like to see that dividend, that cash flow, land in their account. The dividend can also be a divining rod that finds profitability and past business success. But certainly, that does not mean that the Canadian dividend ETFs will find more stability in a market correction. Quality and safety do not always come along for the ride. We’ve already seen the beginning and acceleration of dividend cut announcements in Canada. We’ll have a look at how Canadian dividend ETFs are holding up in the recent market correction.
Dividends get cut in major stock market corrections. There are estimates that we could see dividend reductions in the neighbourhood of 20% or more. We’ve already seen big cuts. Mathew at All About The Dividends recently reported on his third dividend cut. That post looked at Diversified Royalty Corp. That followed Inter Pipeline that reduced their dividend by 72%. NFI Group had also announced a 50% haircut.
There are many more to come. We’ve shut down many sectors. And many sectors that are allowed to operate are seeing greatly reduced activity. The Canadian energy sector is taking a huge hit as the price of oil has absolutely tanked.
I looked at a few sectors in the review of my concentrated Canadian wide moat portfolio on Seeking Alpha. Please have a read of – It Comes Downs To Dividend Safety For The Wide Moat 7.
It’s about sector exposure.
The sectors that will continue to operate in our self-imposed lockdown are Consumer Staples, some Healthcare, Utilities , Technology (including Communication Services), Financials and some Transportation. In this survival mode we need to eat, drink, sleep, keep the lights on, get our medications and get some sunshine. We’re disinfecting most everything and apparently going to the bathroom like never before.
Success during ‘lockdown’ will largely come down to sector exposure. We’ll see that at work in a look at how those Canadian dividend ETFs are holding up. We’ll look at the price declines and we’ll keep track of the dividend disruption through the all but inevitable recession.
For the first quarter of 2020 Canadian markets are down by almost 21%.
Here’s the cumulative returns for iShares Composite Index Fund ticker XIC.
A useful benchmark for Canadian dividend investing is the Canadian Dividend Aristocrats. For the quarter that fund is down more than market. It’s down 28.2%. The US Dividend Aristocrats are also down more than market. That is curious and likely to change. The US Aristocrats have a history beating the market through corrections. This is when we’d expect them to shine.
Looking for some good news we’ll move to the Invesco Canadian Dividend ETF. Recently in a post I had pondered – is this my new favourite?
Invesco’s PDC is down 22%. That is essentially a draw with market.
The Big Juicy Dividends.
Next we’ll move on to Vanguard’s Canadian High Dividend Yield – ticker VDY. I use that ETF in one of my wife’s accounts. It offers a slight out performance vs market from inception in 2013. That’s concentrated in financials, pipelines, utilities and telco’s.
For this quarter VDY is down 19.4%. A little better than market.
And for a look at another high dividend effort – there’s iShares Composite High Dividend – XEI.
XEI is down some 27.4% in 2020.
In the juicier yield area there is also BMO’s ZDV.
ZDV was down 25.5% in the first quarter.
I will soon post on Canada’s best performing Dividend ETF – HAL from Horizons. That fund uses artificial intelligence to predict dividend growth rates, and hence dividend health. The AI is incredibly efficient at predicting future dividend growth, and for sniffing out potential cuts.
HAL is down just 20%.
Also in the active camp there’s CI First Asset Active Dividend ETF.
That ETF is down 21.4% in the first quarter.
iShares Select Dividend ETF XDV is concentrated in financials, telco’s and utilities. That ETF might be built for the day.
XDV is down 20.4%.
iShares also offers the Canadian Quality Index ETF – ticker XDIV. That is the index and methodology used in the Tangerine Dividend Portfolio. The indices insist on a 5-year dividend growth history; it also applies financial health screens.
XDIV is down 21.8%.
And RBC Quant Dividend Leaders looks quite well positioned.
RCD is down 22.2% for the quarter.
The draw down scorecard.
- -19.4% Vanguard Canadian High Dividend
- -20.0% Horizons Active Dividend
- -20.4% iShares Select Dividend
- -21.0% iShares Composite TSX
- -21.4% CI First Asset Dividend
- -21.8% iShares Quality Dividend
- -22.0% Invesco Canadian Dividend
- -22.2% RBC Quant Leaders
- -25.0% BMO Canadian Dividend
- -27.4%% iShares Composite High Dividend
- -28.2% iShares Canadian Dividend Aristocrats
What is the market telling us?
Stocks that hold up better than market simply have the confidence (or more confidence) assigned by the market makers. Mr. and Ms. Market feel these companies hold the potential to hold up better in the challenging economic times. Of course their collective guess is forward thinking and they will all have a different guess as to how long with will all last. They’ll all have a different guess as to the pace of economic recovery and what companies and sectors will participate.
My guess is that Mr. and Ms. Market are making a good guess on the potential of business success through the recession. Of course, that’s not to say that the funds with less volatility and draw down in the current environment will outperform long term. But we have the market on record, for the first quarter. That is their collective call on near term fiscal health. We’ll keep score.
For many dividend investors the most important component will be dividend health. Dividend growth might be more than a challenge over the next year or two.
For my concentrated Canadian portfolio it was down just 13% for the first quarter. And so far so good on the dividend front.
Please be safe. Do your part to save lives. Save your healthcare workers.
See you in the comment section. Any dividend cuts yet? How are your ETFs holding up?
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