3 TSX ETFs With Excellent Dividends

These three TSX ETFs pay excellent monthly dividends and are lower-risk options for risk-averse investors, especially beginners.

Christopher Liew, CFA

Christopher is a CFA Charterholder and a former financial advisor at RBC.

Published August 26, 2022 10:48 am EDT

Risk-averse investors, especially beginners, might not have the stomach to invest in stocks considering the current market environment. The TSX has been see-sawing lately, mostly from recession fears. However, young and old investors alike can elect to invest in exchange-traded funds (ETFs) instead.

This asset class isn’t 100% safe, but it can mitigate market risks for peace of mind. Also, if you’re chasing after excellent dividends, three ETFs stand out. Since each basket of funds has distinct features and different investment objectives, you can align them with your risk tolerance.

Financial sector

BlackRock’s iShares Canadian Financial Monthly Income ETF (TSX: FIE) seeks to maximize total return and provide a stable stream of monthly cash distributions. It offers targeted exposure to the Canadian financial services sector. While FIE is sector-specific, the fund is multi-asset.

The portfolio consists of common shares, preferred shares, corporate bonds, and income trust units of issuers in the Canadian financial sector. Assuming you invest today, the share price is $7.07, while the dividend offer is a juicy 6.73%. A $17,850 position will generate $100.11 in passive income every month.

FIE’s top holdings with a percentage weight of 20.26% is iShares S&P/TSX Canadian Preferred Share Index ETF. Its top five stock holdings are Canadian Big Bank stocks led by CIBC, BMO, RBC, TD, and National Bank of Canada. It also has positions in insurance companies such as Manulife Financial and Power Corporation of Canada.

Extensive exposure

BlackRock is also the fund manager of iShares S&P/TSX Composite High Dividend Index ETF (TSX: XEI). Unlike FIE, this ETF offers exposure to various TSX sectors, except technology and consumer staples. Percentage-wise, the financial (30.18%), energy (28.41%), utilities (14.37%), and communication (11.8%) sectors have the highest representations.

RBC, Enbridge, and BCE are the top three stock holdings. According to BlackRock, XEI is designed to be a long-term foundational holding. The ETF is beating the broader market year-to-date, +5.46% versus -5.66%. Its share price is $26.13, while the dividend yield is a healthy 5.01%.

Real estate

The portfolio strategy of BMO Equal Weight REITs Index ETF (TSX: ZRE) is to replicate the performance of the Solactive Equal Weight Canada REIT Index. As such, the Fund invests in Canadian real estate investment trusts, one of the great sources of passive income on the TSX.

BMO Global Asset Management (BGAM), the portfolio manager, allocates a fixed weight on REIT holdings instead of a market capitalization weight. The purpose is to lessen security-specific risk. Also, each security must meet a minimum trading volume requirement to ensure inclusion in the Fund.

Retail (28.98%) and residential (23.24%) REITs have the highest representation, followed by diversified (14.21%), industrial (14.1%), and office (10.06%) REITs. Currently, ZRE has positions in 24 REITs that include H&R, NorthWest Healthcare Properties, CT REIT, and Choice Properties.

ZRE costs $23.47 per share and pays an attractive 4.51% dividend. Note that this ETF mirrors the underperformance of the real estate sector and is down nearly 14% so far in 2022. The housing market is in correction mode due to the interest rate hikes by the Bank of Canada.