Want to dodge the hassle of rebalancing a dozen different dividend stocks, tracking various payment dates, or, worse, dealing with a dreaded dividend cut?
The answer is straightforward—a dividend ETF. These funds operate like individual stocks but contain a portfolio of dividend-paying stocks.
The ideal options for retirees provide monthly income and mainly consist of tax-efficient, blue-chip Canadian stocks. Here are my top two dividend ETF picks for May, each currently offering yields over 4%.
The iShares option
First up is the iShares S&P/TSX Composite High Dividend Index ETF (TSX: XEI), which offers a diversified portfolio of 75 Canadian dividend stocks.
It has a significant allocation towards the energy, financials, and utilities sectors, making up about 31%, 29%, and 14% of the portfolio, respectively.
In terms of income potential, XEI boasts a distribution yield of 5.35% as of May 10. Simply put, this is the annual yield you can expect if the ETF’s most recent distribution (payout) remained consistent, given its current price.
The distributions from XEI are paid on a monthly basis, providing a regular income stream. The last ex-dividend date for XEI was April 24th, with May TBD.
To receive the most recent dividend, you needed to own the ETF before the ex-dividend date; those who purchased on or after this date would need to wait until the next distribution period to receive their first dividend.
Finally, this ETF comes with a management expense ratio (MER) of 0.22%. This fee is not paid upfront but is deducted from the total investment, affecting the overall net performance of your investment.
The BMO option
An alternative option for those interested in dividend ETFs is the BMO Canadian Dividend ETF (TSX: ZDV). Unlike XEI, ZDV doesn’t follow an index.
Instead, BMO uses its own model to select stocks, focusing on each company’s three-year dividend growth rate, yield, and payout ratio. This strategy aims to ensure that the dividend stocks included are of high quality, rather than simply offering higher yields.
The result of this selective approach is a slightly lower but still attractive distribution yield of 4.2%. ZDV places a greater emphasis on the financial sector in Canada, with more allocations towards telecoms and less towards energy and utilities compared to XEI.
Like XEI, ZDV also provides monthly payments to its investors, which is ideal for those looking for regular income streams. The management expense ratio (MER) for ZDV is 0.39%, which is slightly higher than that of XEI.
