Companies that pay dividends should be a portfolio mainstay because dividend power is a proven supercharger to returns over the long term, especially if dividends are reinvested.
But just as the post-pandemic recovery has been uneven, so has the performance of funds that specialize in dividend stocks.
Here are some updates.
Horizons Active Global Dividend ETF (TSX: HAZ) Recent close $25.90
Background: This actively managed ETF has all is holdings in Canada, the US and Europe. It aims to combine steady dividends with modest long-term capital growth. It is sub-advised by Guardian Capital Corp.
Performance: The ETF is down 14.9% year-to-date. It has a trailing 12-month dividend yield of 1.83%.
Key Metrics: The ETF had 39 companies. The top three sectors are technology (20%), energy (11%) and industrials (10%).
The fund has $206 million in assets and comes with a high management fee of 0.65%.
Discussion: Rising interest rates and inflation have weighed on dividend funds because as rates rise fixed income investments become more attractive. Russia’s invasion of the Ukraine is disrupting global trade and creating inflation through rising energy prices. While that’s good news for oil producers, its bad news for consumers particularly in Europe where the fund has 20% of its holdings. The invasion has also weighed on industrials who use oil as a feedstock for the goods they produce. In the short run these conditions are unlikely to change.
iShares Core Dividend Growth ETF (NYSE: DGRO) Recent close $47.77. All figures in U.S. dollars.
Background: This passively managed ETF has $21 billion in assets. All of its holdings are in the US.
Performance: Year-to-date, the ETF is down 11.8%.
Key Metrics: The top three sectors are information technology (19%), financials (19%), and healthcare (19%). The top holdings are Johnson & Johnson, Pfizer and Microsoft.
The management fee is a low 0.08%. Its trailing 12 month dividend yield is 2.09%.
Discussion: The ETF’s has almost no weighting in energy stocks, the best performing market sector this year which would help offset the challenges of rising inflation and interest rates.
iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (TSX: CDZ) Recent close $30.02
Background: This passively managed ETF has 82 holdings all of which are in Canada. It replicates the S&P/TSX Canadian Dividend Aristocrats Index which is composed of high-quality companies that at a minimum have increased their dividends in each of the least five years.
Performance: The fund is down 4.7% year-to-date, which is the best performance of the three. Its current dividend yield of 3.52% is also best.
Holdings: The top sectors are financials (23%), energy (15%) and utilities (12%). The top three holdings are Pembina Pipleine, Keyera and Fiera Capital.
Key metrics: The fund was launched in 2006, has $966 million in assets and a relatively high management fee of 0.6%.
Discussion: The ETF’s performance reflects the strength of Canada’s energy sector which should continue. The S&P/TSX Capped Energy Index is up 43% this year.