Are you looking for high quality assets that pay income monthly?
If so, you want to look into dividend ETFs. These funds seldom pay dividends every month, the reason being that while most of their portfolio stocks are quarterly payers, they pay out on different schedules. In a diversified dividend portfolio, there is typically a bit of income every month. So, what the fund managers do is create a “distribution reserve,” average out the monthly amount, and pay an annual dividend based on that.
As a result of this strategy, dividend ETF managers are able to create consistent monthly income for their shareholders.
In this article, I explore one dividend fund that pays monthly dividends and has an above-average yield.
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The BMO Canadian Dividend ETF
The BMO Canadian Dividend ETF (TSX: ZDV) is a Canadian dividend ETF that holds stocks mainly in the financials, energy, telecommunications, and utilities sectors. The fund has a $0.07 monthly distribution, which produces $0.84 per share per year. With the shares costing $24.25, you’d get approximately $3,463 in dividends per year if you invested $100,000 in the BMO Canadian Dividend ETF. Here’s the math on that:
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| BMO Canadian Dividend ETF | $24.25 | 4,124 | $0.07 per month ($0.84 per year) | $288.68 per month ($3,464 per year) | Monthly |
As you can see, ZDV has the potential to pay out a considerable amount of monthly dividend income. I should stress that the dividends described above are not guaranteed to be paid at the current level indefinitely. If a number of large ZDV portfolio stocks were to cut their dividends all at once, then ZDV would have to slash its dividend too. That could easily happen in, for example, a recession. However, the current dividend looks likely to continue being paid in the near term.
Portfolio description
ZDV’s portfolio is fairly well diversified, with 56 holdings. Over 99% of the holdings are equities, and most of them are in traditional value sectors. Only 0.52% of the fund’s money is invested in technology stocks, which is a far lesser percentage than the markets as a whole. This fact probably deprives ZDV of some potential capital gains, but it does help to boost the ETF’s yield.
ZDV’s portfolio stocks cover a few different sectors. This may help reduce the correlation between the returns of the different assets somewhat. However, the fact that they are all TSX-listed Canadian companies does reduce the diversification benefit.
Fees
As a final consideration, we can look at The BMO Canadian Dividend ETF’s fees and expenses.
The fund’s management expense ratio (MER) is 0.39%. This is a little on the high side. However, the fund trades at a slight discount to its net asset value (NAV), which offsets the effect of the higher fee somewhat. The fund’s bid-ask spread is usually around 0.06%, which is a little higher than average.
Foolish takeaway
All things considered, The BMO Canadian Dividend ETF looks like a sensible vehicle through which to get dividend income in your portfolio. The fund is diversified, has a high yield, and is run by consummate professionals. Its management fee is a little high, but arguably the yield is worth it.
