Dividend funds rise on rate cut hope

Stocks inched higher last week as the Bank of Canada kept its benchmark interest rate unchanged at 5%. For dividend investors the do-nothing decision was good news. It indicates that the next move for interest rates will be lower if inflation continues to ease.  

Here’s an update on three dividend ETFs, one Canadian, one American and one global.

 iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (TSX: CDZ)  Closed Friday at $31.75 

 Background: This passively managed ETF replicates the S&P/TSX Canadian Dividend Aristocrats Index which is composed of large companies that have increased their dividends in each of the least five years at a minimum.

Performance: The fund has a total return of 3.1% year-to-date and a 3-year average annual total return of 6.7%.   

Key metrics: This ETF is medium risk, yields 4.26% and pays dividends monthly. The annual payout is $1.23. The fund has $893 million in assets and an MER of 0.66%. 

All 91 holdings are Canadian with financials (30%), energy (11%) and industrials (10%) the dominant sectors. The top three holdings are Fiera Capital, Enbridge and Allied Properties.  

Discussion:  The fund has a high yield which is important for those seeking income and the distributions are monthly which helps with cash flow.   The ETF also gets a full benefit from the 15% federal dividend tax credit.  

 iShares Core Dividend Growth ETF (NYSE: DGRO) All figures in U.S. dollars. Closed Friday at $57.25

 Background: The holdings of this passively managed ETF are invested in U.S. stocks with histories of consistently dividend increases.

Performance: The ETF  is a perennial top performer. It has a total return of 6.2% year-to-date and has a 3-year total average annual return of 8.9%.   

Key metrics:  The ETF has 420 holdings, $26.4 billion in assets and a low management expense ratio of 0.08%. Its main sectors are financials (19%), technology (18%) and healthcare (17%.) 

 The top holdings are Broadcom, JP Morgan Chase and Microsoft which make up almost 10% of the fund.  The ETF yields 2.3% and an annual payout of $1.31. Distributions are paid quarterly.

Discussion: The ETF has performed well because it holds large, dominant megacap multinationals including Apple, IBM, Procter & Gamble and Johnson & Johnson.

Horizons Active Global Dividend ETF (TSX: HAZ)  Closed Friday at 33.71.

Background: This actively managed ETF sub-advised by Guardian Capital Corp. is another solid performer. It is geographically diverse with holdings in Canada, the U.S. and Europe. It aims to combine steady dividends with modest long-term capital growth.

Performance: The ETF is up 9.1% year-to-date and has a total average annual return of 14% over 3 years.  

Key metrics: American holdings make up 50% of the fund, followed by Canada (14%) and France (13%).  

The ETF holds 39 companies with technology (19%), financials (18%) and healthcare (14%) the top sectors. Broadcom, Microsoft and Apple represent 19% of the fund.

The ETF has $343 million in assets, is low to medium risk and a high management fee of 0.78%. The current yield is 1.6% with an annual payout of $0.49.

 Discussion: The fund has captured the tech rebound and the strong performance of U.S. financials.  Of note in the top 10 is Danish drugmaker Novo Nordisk which markets the weight loss drug Ozempic. Nordisk’s shares are up 87% in the past year.

This article appeared in the Income Investor newsletter on Mar 14, 2023.  For information on how to reprint this article please view this page.