If you need a passive-income boost, some of the many dividend-focused exchange-traded funds (ETFs) might be the right answer. Even if you’re more of a stock picker than an indexer, the following trio of income ETFs is worth keeping tabs on, especially if you’re looking for the perfect mix of dividends and growth.
Of course, there are so many new income ETFs coming live on the TSX Index in recent years. It’s becoming tougher to pick. To keep things simple, I think keeping the management expense ratio (MER) low is one of the top priorities. After that, the size of the yield, the strategy (for example, does the ETF prioritize steadiness and dividend health over growth?), and the top-10 holdings underneath the hood are worth careful consideration.
Personally, I’d look at all the holdings, whether it’s 30 or in the triple digits, as well as the weightings, because at the end of the day, an index ETF is only as good as the holdings within it.
When it comes to active ETFs, it might be more about the star managers running the show than the actual snapshot of stocks within the portfolio. But if you want to be cost-effective, a hands-off strategy seems to be the way to go.
Let’s have a closer look at a top dividend ETF that I’ve been buying more of in recent months.
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Vanguard FTSE Canadian High Dividend Yield Index ETF
The Canadian market might not be the growthiest, but it sure is rich with dividend yield!
Vanguard FTSE Canadian High Dividend Yield Index ETF (TSX:VDY) isn’t just my favourite high-yield ETF; it’s my favourite way to play the Canadian stock market. Arguably, the TSX Index’s best features are its dividend-heavyweights within the financial and energy sectors. Canadian banks have the yields and the growth to draw in value investors from across the globe.
And the energy plays (think pipelines and producers in the Alberta oil patch) are also fantastic cash cows that can keep paying beefy dividends for the long haul. While there are great lower-yielding industries as well (think uranium and gold miners, as well as a handful of quality consumer names), I think those seeking big dividends and performance have reason to stick with the larger caps atop the TSX Index. With the VDY, you’ll get the big names with big dividends.
And what’s more, despite the energy exposure, the ETF has been able to sidestep the latest plunge in energy names, rising steadily amid the worst of the Iran war selloff. That’s due to the larger exposure to the cash cow midstream energy plays that aren’t as sensitive to oil price moves.
In any case, the chart has been a smooth ride so far this year, which is fantastic, especially when paired with the 3.48% yield. The TSX Index doesn’t look nearly as smooth as the VDY, especially in this past year, given that it held up in the worst of the Iran war panic this March.
If the banks continue to do the heavy lifting while energy marches higher, I think the VDY will keep putting the TSX Index to shame. And who knows? Maybe the S&P 500 might not have much on the VDY again if growth stocks stay stalled and value shines again.
