Beginning Investors: 1 Simple Strategy for a Lifetime of Security

These two ETFs focus on blue-chip Canadian and U.S. stocks with a history of growing dividends.

| More on:
resting in a hammock with eyes closed

Source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

When you’re just starting out, I firmly believe you should focus on owning quality companies, not necessarily undervalued ones. Why?

Because you’re likely to experience at least one market correction—if not more—along the way. Owning solid blue-chip companies can make those moments far more reassuring, both mentally and financially.

If you’re unsure how to identify what makes a company “quality,” that’s okay. You don’t need to know all the financial ratios just yet. A simple and effective shortcut is to look for companies with a history of consecutive years of dividend growth.

This works because consistent dividend growth is a strong proxy for quality—it often signals a company with solid cash flow, a durable business model, and disciplined management.

If the idea of screening for dividend growers manually sounds hard, don’t worry. You can delegate this task to two unique exchange-traded funds (ETFs) from Vanguard and iShares, designed specifically to focus on American and Canadian dividend-growth stocks.

Vanguard U.S. Dividend Appreciation Index ETF

First up is Vanguard U.S. Dividend Appreciation Index ETF (TSX:VGG).

Created with Highcharts 11.4.3Vanguard U.s. Dividend Appreciation Index ETF PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

This ETF tracks S&P U.S. Dividend Growers Index, which includes a couple of hundred stocks with a minimum requirement of 10 consecutive years of dividend growth. It charges a modest management expense ratio (MER) of 0.30%.

While its current yield of 1.25% might not grab your attention, remember that ETFs like this are built for total returns and long-term compounding rather than immediate income.

iShares S&P/TSX Canadian Dividend Aristocrats Index ETF

A great complement to VGG is iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (TSX:CDZ).

Created with Highcharts 11.4.3iShares S&p/tsx Canadian Dividend Aristocrats Index ETF PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

CDZ employs a similar strategy, but it focuses on the Canadian market. Unlike VGG, it only requires stocks to have a five-year streak of consecutive dividend growth.

While its MER of 0.66% is higher than VGG’s, CDZ offers two key benefits: a higher yield of 3.56% and monthly payouts instead of quarterly ones.

Putting it together

If you had invested $10,000 in a 50/50 allocation between VGG and CFZ from August 12, 2013, to November 20, 2024, your investment would have compounded at an annualized rate of 11.57% with dividends reinvested.

By the end of that period, your original $10,000 would have grown to $34,351.12—more than tripling in value with no work needed from you.

Both ETFs are fantastic for owning quality companies with a track record of growing their dividends. Over time, the “snowball effect” of dividend growth and reinvestment can work wonders.

Here’s how it works: as these companies increase their dividends, you can reinvest those payouts to buy more shares. These additional shares then generate even more dividends, which can be reinvested again.

Over the years, this compounding effect accelerates, creating a powerful growth engine for your portfolio. It’s a simple yet effective strategy for building wealth and securing a lifetime of financial security.

Should you invest $1,000 in Ishares S&p/tsx Canadian Dividend Aristocrats Index Etf right now?

Before you buy stock in Ishares S&p/tsx Canadian Dividend Aristocrats Index Etf, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Ishares S&p/tsx Canadian Dividend Aristocrats Index Etf wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Stocks for Beginners

Stocks for Beginners

Dip Buyers Could Win Big: The Best Canadian Stocks to Buy Now

These two growth stocks have taken hits recently, but their fundamentals remain strong, and their growth prospects are intact.

Read more »

An investor uses a tablet
Stocks for Beginners

The Smartest Canadian Stock to Buy With $250 Right Now

Are you looking for the smartest Canadian stock to buy right now? Consider this gem and avoid market volatility.

Read more »

A train passes Morant's curve in Banff National Park in the Canadian Rockies.
Dividend Stocks

1 Practically Perfect Canadian Stock Down 24% to Buy Now and Hold for Life!

CNR stock is a top Canadian stock for investors, especially with shares down on the TSX today.

Read more »

Canada national flag waving in wind on clear day
Dividend Stocks

The Best Canadian Stocks to Buy Right Away With $30,000

If you have $30,000 you're willing to invest, these are some of the first Canadian stocks to consider on your…

Read more »

rail train
Dividend Stocks

What to Know About Canadian Pacific Railway Stock for 2025

CP stock has now gone through a major merger, so what do investors have to look forward to?

Read more »

Paper Canadian currency of various denominations
Stocks for Beginners

2 Canadian Value Stocks for 2025

There's a fair bit to consider when looking at value stocks, so let's look at two that fit the bill.

Read more »

data analyze research
Stocks for Beginners

Smart Money’s Playbook for the Current Market Dip

This market dip might be worrying investors, so don't worry with these two stocks.

Read more »

Canada day banner background design of flag
Tech Stocks

The Top Canadian Stock to Buy With $5,000 in 2025

There are few Canadian stocks out there that offer the outlook of this tech stock, bound for more growth.

Read more »