The Canadian dividend ETFs in 2021.

In this post we’ll look at the final tally for Canadian dividend ETFs in 2021. Of course, Canadian dividend ETFs had a rough go in 2020 during the first year of the first modern day pandemic. The dividend ETFs fell by more than market and while they began to fight back against the TSX Composite, there were just not enough months in 2020 to close the gap. In 2021, high dividend ETFs moved to a level of outperformance.

In the Globe and Mail Rob Carrick noted how the Canadian dividends ETFs underperformed their broad market counterpart at each ETF provider, for 2020 and over the previous three and five years.

In my investment recap for 2020 I remarked how the cap-weighed equity indices were well-positioned for the pandemic in Canada and the US. They were so well prepared it was uncanny. It’s as if the indices knew what was coming. In the US the S&P 500 was already weighted to the tech giants that would prosper extensively in the stay at home and work from home economy. And of course no company prospered as much as Amazon as we shopped from home. Many of the consumer discretionary stocks were waiting as well to accept the dollars that could be spent – see Home Depot and Lowe’s. We stayed at home, and we fixed up our homes. And of course the health care sector, once again, offered a defensive posture.

Shopify ruled the Canadian market

Much of the underperformance of Canadian dividend payers vs the market can be explained by Shopify. I covered the incredible story of Shopify in a July MoneySense post. That company/stock was already well positioned heading into the pandemic recession. The stock then delivered head-turning performance in 2020 with a return of 280%. Shopify became the most valuable publicly traded company in Canada, it took the crown from Royal Bank of Canada. Shopify has since slipped to third position.

If you didn’t hold Shopify in 2020, you likely underperformed the markets. Of course the dividend ETFs don’t hold Shopify, as the company does not pay a dividend. Shopify was not even profitable heading into 2020. Only Horizons Dividend ETF HAL offers any Canadian tech exposure (that exposure was greatly reduced in 2021 and into 2022).

Materials including gold stocks also contributed to Canadian stock market gains in 2020. Those risk off assets such as gold did their thing during the uncertainty of 2020. And of course there are inflation concerns as the developed world moved to record stimulus and record money printing to fight the pandemic. This inflation did dominate in 2021.

In a previous post on Canadian dividend ETFs I detailed the drawdown in the pandemic stock market correction.

The draw down scorecard 2020

• -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

The returns of leading dividend ETFs in Canada – 2020.

• CI First Asset Active Dividend ETF (FDV) up 3.0%
• iShares Select Canadian Dividend ETF (XDV) down 0.5%
• Vanguard Canadian High Dividend ETF (VDY) down 1.1%
• RBC Quant Canadian Dividend Leaders (RCD) down 1.3%
• iShares Canadian Dividend Aristocrats (CDZ) down 2.9%
• Horizons Active Dividend ETF (HAL) down 3.1%
• BMO Canadian Dividend ETF (ZDV) down 3.3%
• Invesco Canadian Dividend ETF (PDC) down 5.5%
• iShares Core Quality Dividend ETF (XDIV) down 7.4%
• iShares Composite High Dividend ETF (XEI) down 7.6%

Commentary from 2020 update post …

And yes, the higher yielding dividend ETFs are fighting back and closing the gap. We’ve seen a switch to value stocks leading the surge after positive vaccine results in November and vaccine approvals in December. Many of the harder hit stocks might hold greater value. The generous dividend payers often offer greater current profits and juicy dividends that can be employed for reinvestment.

That value theme did come to fruition in 2021. And the big dividend payers did outperform the market in 2021.

The returns of leading dividend ETFs in Canada – 2021 

• Vanguard Canadian High Dividend ETF (VDY) 36.5%
• iShares Composite High Dividend ETF (XEI) 35.6%%
• iShares Core Quality Dividend ETF (XDIV) 33.2%
• iShares Select Canadian Dividend ETF (XDV) 31.5%
• Invesco Canadian Dividend ETF (PDC) 30.2%
• RBC Quant Canadian Dividend Leaders (RCD) 28.9%
• BMO Canadian Dividend ETF (ZDV) 28.6%
• iShares TSX Composite (XIC) 25.0%
• iShares Canadian Dividend Aristocrats (CDZ) 25.1%
• Horizons Active Dividend ETF (HAL) 24.6%
• CI First Asset Active Dividend ETF (FDV) 22.5%

We see the TSX Composite, offered as a market benchmark, returned 25.0%

Stick to your plan – get a plan

They key is to stick to your investment thesis. Why did you buy the stocks or ETFs in the first place? We can’t run away at the first sign of trouble. Some of the dividend ETFs are designed to deliver total returns. Some of the dividend ETFs are designed to deliver generous and growing dividends that might be tax efficient for taxable accounts. Know how the ETF fits within your greater financial plan and portfolio mix.

But that doesn’t mean we can’t tweak the portfolio to manage risks, or to cover portfolio holes that we discover as we gain investment knowledge.

I really liked how the greatest laggard (BMO’s ZDV) was positioned for 2021 and beyond. If we are entering an inflationary period, that ETF holds a considerable allocation to energy producers, materials and gold stocks. Commodities and real assets can protect during inflationary times. I would eyeball that allocation at about 25%. That’s a decent hedge.

The dividend ETF income

We will find a variance in the dividend sustainability in 2020. Of course many dividends were cut or held in 2020, some ETFs fared better than others.

In one of my wife’s accounts we hold Vanguard’s High Dividend VDY. That fund did quite well in 2020 all things considered. VDY delivered a dividend increase of 2% in 2020.

In 2021 VDY delivered a 2.6% annual raise. That’s not bad considering that the financials were mandated to not increase dividends or buy back shares. Dividend increases are back for financials in 2022.

Vanguard VDY distribution history:

• $1.54 2021
• $1.50 2020
• $1.48 2019
• $1.33 2018
• $1.16 2017
• $1.08 2016
• $1.17 2015
• $1.02 2014
• $0.75 2013 

We see that the Vanguard Dividend ETF doubled its distribution over the last 10 years. That’s not too shabby, especially for one who might be using ETFs to fund retirement.

Here’s Vanguard VDY vs iShares XEI.

Thanks for reading. Please offer your thoughts in the comment section. How did your dividends hold up for 2020 and 2021? Or, are you going core ETF Portfolio and skipping the dividends?

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Dale