Canadians are sitting on a mountain of cash. Higher rates for savings accounts and GICs were too juicy too resist. But with rates coming down, these income lovers have been moving funds back to struggling dividend ETFs and their favourite dividend stocks. After a brief period of catch up outperformance, many dividend ETFs are lagging the TSX Composite. That said, you’ll discover that a couple of Cut The Crap Investing ETF favourites are still beating the market in 2024. But are most investors missing out on a golden opportunity? All of this and more in the Sunday Reads.
Here’s the post from Tim Kiladze in the Globe & Mail (sub required) that explains the dividend dilemma. Canadians are sitting on $200 billion in cash that might be looking for a new home in the falling rate environment. That money has been flowing to higher dividend stocks and funds. But not all dividend ETFs are keeping pace.
The market is getting a boost from gold stocks that are up over 45% over the last year. Other mining stocks are also on a good run. Canadian tech (XIT.TO) is up over 45%.
Canadian dividend ETF performance
Here’s the Dividend ETF comparison to the TSX Composite. These are annualized returns. The 5-year number is from January of 2020, so not quite 5 years. The 1-year time frame represents the period when the rate cut cycle began to drive dividend stocks higher.
| Dividend ETF | 1-year | 5-year |
| Vanguard Canadian High Dividend ETF (VDY) | 35.0% | 12.4% |
| iShares Core Quality Dividend ETF (XDIV) | 34.0% | 11.3% |
| RBC Quant Canadian Dividend Leaders (RCD) | 35.5% | 11.1% |
| iShares TSX Composite (XIC) | 33.6% | 10.8% |
| iShares Composite High Dividend ETF (XEI) | 29.7% | 10.0% |
| BMO Canadian Dividend ETF (ZDV) | 32.3% | 9.7% |
| iShares Canadian Dividend Aristocrats (CDZ) | 38.2% | 8.9% |
| iShares Select Canadian Dividend ETF (XDV) | 34.8% | 8.9% |
| Invesco Canadian Dividend ETF (PDC) | 32.6% | 8.6% |
| GlobalX Dividend ETF (HAL) | 29.8% | 8.0% |
We see that VDY is the outperformer. I used that ETF for my wife’s accounts from VDY inception. In essence, that ETF has outperformed because Canadian financials (XFN) have outperformed (as they have done historically). VDY is almost 60% financials.
We enjoyed the outpeformance but I then moved to create a version of the Canadian Wide Moat Portfolio. It includes all of the moat stocks excluding the economically sensitive railways. It has outperformed VDY and XIC in its brief history.
The VDY Plus Portfolio. I will soon update the performance for that portfolio model.
XDIV and RCD have outperformed over the last year and the last 5. Along with VDY, these appear to be the ETFs that you might give serious consideration. That said, the Dividend Aristocrats (CDZ) have a long term history of outperformance. That dividend history can provide a quality skew.
And in the end you might find simply buying the market (XIU) (XIC) is the most sensible approach. Or, one of my favourite ETFs is BMO’s Low Volatility ZLB, that is essentially the ETF version of the Canadian Wide Moat Portfolio.
A dividend reminder
Keep in mind that the dividends at times can help us find certain kinds of stocks (value / profitability/ quality), think of them as a divining rod. But the dividend payments do not contribute to total return. When we are paid a dividend the share price drops (on ex dividend day) by an equal amount to reflect the cash value removed from the stock. The dividend is a value removal, not a value creation. I know dividends can make us feel good, but we should not chase yield for yield sake.
A few more thoughts on gold
Gold is a wonderful portfolio add. As I’ve long reminded readers, gold makes the balanced portfolio better. Gold is present in the new balanced portfolio, and so is new gold – bitcoin. You’ll also find REITs in the mix along with an equity growth booster. That model has greatly outperformed a traditional balanced portfolio model.
Gold and REITs are present in this post – how to boost your retirement income.
Stocks or ETFs?
A very good consideration offered from ETFGo …
On that subject I would offer that we can use ETFs for all of the portfolio shaping that may be required. We can shape with more precision with individual stocks, but we need to hold enough of ’em to ensure ample diversification.
Know your knowledge level and comfort level. Adopt the approach that is right for you.
For the greatest simplicity consider the wonderful managed all-in-one global asset allocation ETFs.
You can’t time the market
And making the rounds again, a demonstration that any market timing does not work.
We adopt an investment plan and put it on auto pilot.
More Sunday Reads
Dividend Hawk looks at his stock stories and dividends received. We both hold Texas Intruments (TXN) that reported this past week …
Texas Instruments Incorporated (TXN) Reports Third Quarter 2024 Financial Results; TXN reports third quarter GAAP EPS of $1.47, 21% below last year’s result but $0.10 more than expected. Revenue of $4.15 billion beats analyst estimates by $30 million but decreased 8.4% versus the same quarter last year. Management guides fourth quarter revenue in the range of $3.70 billion to $4.00 billion and earnings per share between $1.07 and $1.29.
At Banker on Wheels there’s always a wide selection of post and podcasts. In the mix, Whitecoat Investor looks at the lessons learned over the last 20 years of investing. Also, 10 books on financial independence from Financially Happy.
Check out Justwealth, Canada’s top robo advisor
Stocktrades looks at Apple, one of my 3 personal U.S. stock picks. I’d agree that Apple is a wonderful franchise and one of the strongest brands (with loyal consumers) on the planet. But it is certainly expensive as it faces trying growth prospects. As I’ve penned in the past, while I have 1000% plus returns, I’m happy to trim here and there to create retirement income.
Findependence Hub has 4 new posts this week including – should we hedge our currency when we invest outside of Canada?
Bob at Tawcan offers his portfolio update for September. Remember it’s total return for the win.
More money is more better.
Dale
More money will greater greater retirement income. In retirement, portfolio success comes down to total return and risk level. That’s it!
Managed total return wins in retirement.
Tweet tweet
And as expected, the Bank of Canada cut the currency, er, make that overnight rate by 50 bps (0.50%) …
A reminder that international investments and currency exposure is so important. We can hedge away that risk of a falling Canadian dollar.
Thanks for reading and sharing this post and blog with friends and family.
Join Cut The Crap Investing
You can follow this blog, it’s free. New posts, plus other free content and ‘ideas’ will be delivered to your email inbox. Enter your email in the subscribe area, or ‘join us today’ on the home page.
ETFs / Stock Portfolios / Retirement Strategies / Wealth Creation
Thanks Partners
Earn a break on fees by way of many of these partnership links.
CANADA’S TOP-RANKED DISCOUNT BROKERAGE
Cut the Crap Investing readers can earn a break on fees at Questrade by way of that partnership link. At Questrade, you can buy ETFs for free. It’s a great place to build your stock portfolio.
Here’s Canada’s top-performing Robo Advisor, Justwealth. You can get advice, planning and low-fee ETF portfolios all at one shop.
Consider Justwealth for RESP accounts. That is THE option in Canada with target date funds that adjust the risk level as the student approaches the College or University start date.
OUR SAVINGS ACCOUNTS
Make your cash work a lot harder at EQ Bank. RRSP and TFSA account savings rates are at 2.5% and 3.0%. You’ll find some higher rates on GICs up to 4.50%. They also offer U.S. dollar accounts. We use EQ Bank, they have been awesome.
OUR CASHBACK CREDIT CARD
We make between $40 to $70 every month! And that’s on everyday spending. There are no fees with …
The Tangerine Cash Back Credit Card
For September we received $51.44 in cash. You can select 3 categories for 2% cash back.
That cash went into my TFSA account to buy some bitcoin, ha.
While I do not accept monies for feature blog posts please click here on the mission and ‘how I might get paid’ disclosures. Affiliate partnerships help me (try to) pay the bills for this site. But they don’t, ha. That will allow me to keep this site free of ads and easy to read.
Dale, FYI:
Re: “Or, one of my favourite ETFs is BMO’s Low Volatility ZLB, that is essentially the ETF version of the Canadian Wide Moat Portfolio.”
The mutual fund version of ZLB is BMO Low Volatility Canadian Equity ETF Fund F4 (BMO37772). It has a very similar MER to ZLB and pays a monthly distribution yield of 4% which can be taken in cash (distribution phase) or can be dripped (accumulation phase).
Thanks Bernie. I will have a look at F4.
Dale