For New (and Old) Investors: 3 Dividend-Paying ETFs With Lower-Risk Profiles

Three dividend-paying ETFs with lower-risk profiles are suitable for new and old investors alike.

Canada’s primary stock market underperformed in September 2022 and will enter the fourth quarter in negative territory. The TSX is down 12.1% year to date, with only two out of 11 primary sectors showing positive gains. Energy is ahead 31.1%, while the consumer staples sector is up by a measly 1%.

The probability of a recession keeps rising with the aggressive rate hikes by the Bank of Canada. Because of recession fears, people are looking for places to hide their money in a volatile environment. One asset class that should help contain panic is an exchange-traded fund (ETF). Whether new or old, risk-averse investors can consider ETFs over individual stocks.

While there’s no risk-free investment, these three Canadian ETFs have lower-risk profiles. The dividend yields are moderate to high, but the asset mix, or allocation, in the respective funds should mitigate market risks.

Equities and fixed-income securities

Vanguard Balanced ETF Portfolio (TSX: VBAL) is a sound choice because the exposure is broad-based. The fund manager maintains a long-term strategic asset allocation of approximately 60% in equities and 40% in fixed-income securities (bonds). VBAL’s objective is to provide long-term capital growth with a moderate level of income to investors.

In terms of geographic exposure, the majority of the assets are from the U.S. (43.9%) and Canada (30%). Investments in Europe, the Pacific, and Emerging Markets complete the minority holdings. Moreover, sub-advisors to the fund reconstitute and rebalance the portfolio asset mix from time to time, or when necessary.

If you were to take a position in VBAL right now, the share price is $26.30. The dividend yield is a decent 2.56%, while the payouts are quarterly.

100% Canadian stocks

Sector-specific ETFs are available on the TSX, although the BMO Low Volatility Canadian Equity ETF (TSX: ZLB) is best during uncertain market conditions. The 100% Canadian ETF invests in blue-chip companies in 9 of the 11 primary sectors, and only the healthcare and technology sectors have zero representations.

Regarding sector allocation, financials (21.50%), utilities (15.67%), and consumer staples (15.44%) have the most significant percentage weights. ZLB has a total of 47 stocks, with Hydro One, Intact Financial, and Metro Inc. as the top three holdings. This ETF outperforms the TSX and is down by only 4.8% year to date. At $37.91 per share, the annual dividend yield is 2.72% (quarterly distribution).

Monthly dividends

iShares S&P/TSX Composite High Dividend Index ETF (TSX: XEI) is an ideal option for dividend chasers. Besides the high dividend yield of 5.55%, the ETF’s payout frequency is monthly. Like ZLB, the Fund invests only in Canadian stocks. XEI replicates the performance of the S&P/TSX Composite High Dividend Index and seeks long-term capital growth. The current share price is $23.98 (-2.8% year to date).

XEI carries a medium-risk rating and has 75 stock holdings. Because the exposure is to dividend-paying Canadian stocks from various sectors, investors can spread the risks. The financials (30.5%), energy (29.3%), and communications services (12%) sectors have ample representation. You can own shares of industry leaders RBC, Enbridge, and BCE in one basket of funds.

Instant diversification

The strong headwinds in 2022 will likely extend to next year or until inflation eases close to the central bank’s target range (2% to 3%). Meanwhile, it’s advisable to be extra defensive today by owning ETFs for instant diversification.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends Enbridge and INTACT FINANCIAL CORPORATION. The Motley Fool has a disclosure policy.

More on Stocks for Beginners

RRSP (Registered Retirement Savings Plan) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

The RRSP Deadline is in March: Here’s Why November Starters Come Out Ahead

An earlier RRSP contribution plan spreads the cash commitment and leaves more time to make sensible investment choices.

Read more »

A glass jar resting on its side with Canadian banknotes and change inside.
Dividend Stocks

How Much Emergency Money Do Canadians Actually Need?

Generally, aim for 3–6 months of essential living expenses for your emergency money. For those with more variability in their…

Read more »

The RRSP (Canadian Registered Retirement Savings Plan) is a smart way to save and invest for the future
Dividend Stocks

Can You Have a TFSA, RRSP and FHSA at the Same Time? Yes. Here’s How They Fit Together

These three accounts can work together, with the FHSA serving a home purchase, the TFSA offering flexibility, and the RRSP…

Read more »

how to save money
Energy Stocks

Gasoline Is Up 27.8% in a Year: This Oilsands Giant Is Cashing In

Suncor's integrated operations generate substantial cash, although a strong oil quarter shouldn't become a permanent assumption.

Read more »

happy woman throws cash
Dividend Stocks

5 TSX Dividend Stocks for Steady Cash Flow: What I’d Buy With $5,000

If you are looking for stable and growing income that you can depend on, these TSX dividend stocks are a…

Read more »

a person watches a downward arrow crash through the floor
Dividend Stocks

Got $2,000? 2 Canadian Dividend Stocks I’d Buy Before the Next Market Dip

If you are worried about the next market dip, buy these two dividend stocks with $2,000 to find safety from…

Read more »

The sun sets behind a power source
Dividend Stocks

Taking CPP at 60 Shrinks Your Cheque 36%: This Dividend Stock Helps Bridge the Gap

Fortis can supplement retirement income, but dividend cash and a permanently reduced CPP pension aren't interchangeable.

Read more »

dividend stocks are a good way to earn passive income
Dividend Stocks

The Biggest Myths About Earning Passive Income From Stocks

You cannot get passive income from stocks. I explain why in this article.

Read more »