Looking for a way to generate a steady income stream? One strategy is to consider investing in a high-yield dividend exchange-traded fund (ETF). These ETFs hold a collection of stocks that are known for paying out higher-than-average dividends. One such option for Canadian investors is the Global X Canadian High Dividend Index Corporate Class ETF (TSX: HXH). If you had around $15,000 to invest, HXH could be a worthwhile addition to a well-rounded investment portfolio.
Source: Getty Images
About the ETF
HXH aims to track the performance of the Solactive Canadian High Dividend Yield Index (Total Return), after taking out expenses. This index is designed to measure how Canadian-listed stocks with high dividend yields are performing overall. As of writing, the net asset value (NAV) of HXH was $52.22 per unit, and its market price was $53. Over the past year, this ETF has provided a total return of 11%, and that includes any dividends reinvested.
One of the really nice things about HXH is that it offers a diversified portfolio. When you invest in this ETF, you’re getting exposure to about 40 different Canadian companies or Real Estate Investment Trusts (REITs) – ones expected to have high dividend yields. To make sure things aren’t too concentrated, HXH limits how much of the ETF’s holdings can be in any single stock or industry group. The current holdings span across sectors like energy, financial services, and various other industries. This helps to spread out the risk within the portfolio. This way, you’re not too heavily reliant on the performance of just one company or sector.
How it works
Now, it’s important to note one key thing about HXH. The ETF doesn’t currently pay out regular cash distributions to its unit holders. Instead, any dividends that the underlying companies in the ETF pay out are automatically reinvested back into the ETF. This approach is designed to help boost the total return of the ETF over time. So, if you’re looking for a regular monthly or quarterly income payment, HXH might not be the best fit for you right now. However, if you’re more focused on the overall growth of your investment and are comfortable with the idea of dividends being reinvested for returns, then this could be a good option.
In terms of costs, HXH has a management expense ratio (MER) of just 0.11%. This is quite low, which is good news for investors because it means that a larger portion of your investment is working for you. That’s rather than going towards covering the ETF’s operating expenses. A low MER can really add up over the long term.
If you were to invest $15,000 Canadian dollars in HXH, it could provide a solid base for a passive income strategy focused on total return. Even though you wouldn’t be receiving regular cash payouts, the fact that dividends are reinvested means that your initial investment has the potential to grow over time, as seen by the 11% total return over the past year. This suggests that HXH can offer steady growth for your investment in the long run.
Bottom line
In conclusion, the HXH offers an opportunity for Canadian investors to gain exposure to a diverse basket of high dividend-paying Canadian stocks – one with a focus on maximizing total return through dividend reinvestment. Its well-diversified portfolio, low management fees, and solid past performance make it a compelling choice for a $15,000 investment. Especially one aimed at building steady passive income over time, even if that income isn’t received as regular cash distributions right now. As always, it’s a good idea to do your own research to make sure this investment aligns with your personal financial goals and risk tolerance.
