Author’s note: The ETF discussed in this article pays every month and has a 4.4% annual yield. The monthly yield is approximately 0.36%.
Would you put your entire portfolio in a single investment?
That might sound like a crazy thing to do, but if you count funds as “single assets,” then it isn’t the riskiest thing in the world.
Many exchange-traded funds (ETFs) are more diversified than most investors’ entire portfolios. For example, ETFs built on the ACWI All-World index typically have thousands of stocks in them. Putting all of your money into such a fund – depending on your risk tolerance and liquidity needs – might not be the craziest thing you could do.
With that in mind, here is a Canadian high-yield monthly pay ETF in which I would be comfortable investing my entire tax-free savings account (TFSA) if I could.
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Vanguard’s high-yield Canadian ETF
The Vanguard FTSE Canadian High Dividend Yield Index ETF (TSX:VDY) is a Canadian high yield ETF that invests in high-yield Canadian stocks. It has a $0.1916 monthly dividend, which means a $0.23 annualized payout. At today’s unit price of $52.33, these payouts provide a roughly 4.4% dividend yield. That’s a pretty decent yield for a highly diversified index fund. And, with VDY’s management expense ratio (MER) being just 0.22%, most of the income you earn from this ETF, you actually keep. So, VDY has some desirable characteristics.
Here’s how much dividend income you can get if you invest $50,000 – a sum that most Canadians have in TFSA room – in Vanguard’s Canadian High Dividend Fund:
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| Vanguard FTSE Canadian High Dividend Fund | $52.33 | 956 | $0.01916 per month ($0.23 per year) | $18.317 per month ($220 per year) | Monthly |
Sectors represented
One of the best characteristics of Vanguard’s High Yield Canadian ETF is that it represents a wide variety of sectors. These include:
- Financials
- Energy
- Utilities
- Telecoms
- And more.
Having all these sectors in VDY’s portfolio improves the fund’s diversification, which is key to reducing risk.
High diversification
Vanguard’s High Yield Canadian ETF is also highly diversified in numerical terms. It holds 60 stocks, which is more than its benchmark index holds (59). So, when you invest in VDY, you are not putting all of your eggs in one basket.
Valuation
VDY’s underlying portfolio stocks are cheap going by the standards of North American markets these days. Trading at 14.3 times earnings and 1.7 times book value, they are much cheaper than either the TSX Index or the S&P 500.
Low fees
Last but not least, Vanguard’s High Yield Canadian fund charges low fees. The management fee (compensation to fund managers) is 0.20% while the management expense ratio (MER), which includes execution costs, is 0.22%. These are both below average by the standards of funds as a whole, arguing that VDY is reasonably priced.
Foolish takeaway
Taking into account all of its holdings and characteristics, I’d feel safe having my entire portfolio invested in the VDY ETF. I do not actually have all of my money invested in it, or any other single asset: I have other opportunities I like better. But if I had all my money in VDY, I would sleep reasonably well at night.
