In this piece, we’ll check in on a few Canadian ETFs that make sense to own if you’re more of a set-and-forget kind of investor who’d rather automate things with a dollar-cost averaging (DCA) approach, which entails sprinkling a bit of each paycheque into a few securities (in this case, ETFs), regardless of where the market has been headed or what some pundit thinks could be next.
At the end of the day, staying consistent with investing, rather than trying to pick optimal times, seems to be the best and most peaceful move for passive investors who want to do well over time, rather than having a front-row seat to the market’s biggest winners.
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Vanguard FTSE Canadian High Dividend Yield Index ETF
I don’t normally like chasing higher yielders, but when it comes to ETFs, I must say that something like the Vanguard FTSE Canadian High Dividend Yield Index ETF (TSX: VDY) looks a whole lot more interesting, at least in my opinion, than a vanilla TSX Index ETF. And it’s not just about yield.
The VDY might be far less diversified than the broad Canadian market. But then again, the TSX Index isn’t exactly the most diversified index in the world anyway, given its heavy weighting in financials, energy, and materials names. Since the big banks, insurers, energy producers and pipelines have been the biggest leaders, wouldn’t it make sense to take a bigger slice of what’s working rather than getting a broad mix with what I’ve described in a prior piece as a “sprinkle” of everything else (i.e., the smaller-cap growers in other sectors).
The way I see it, you might as well get more yield, momentum, and relative value than the TSX Index with something like the VDY.
Banking on the TSX
The TSX Index is already, in big part, a bet on the success of the Big Six Canadian banks. But if you’re like me, it still may not be quite enough, especially if you’re as bullish on the banks as many analysts are these days.
In this environment, I’d say the banks are worth banking on, especially as they use AI to save money across the board, at least relatively speaking. Tech-driven monetization with less CapEx than frontier innovators sounds like a win in my books! Whether you choose a bank ETF, buy individual names, or keep it simple with the VDY, the group is worth a second look.
Also, let’s not forget about the energy producers and midstream names, which are very well-represented within the VDY. Such names possess nice yields and have also helped power the impressive ETF to TSX-beating gains in the past year.
Bottom line
The 3.3% dividend yield on VDY may be on the low side historically speaking, but that’s mostly because the ETF has been a huge gainer lately.
Given that shares are up more than 62% over two years, the performance gap with the TSX is becoming harder to ignore by the day. Bigger names have been better of late (at least for the most part), and that might not change anytime soon.
So, if you’re looking to get paid more yield and invest in the most towering, obvious dividend giants, I prefer VDY over an ETF that tracks the broad TSX Index. It’s like a large-cap bank and energy ETF brought together in one convenient package. And in this climate, I’d much rather have more in the dividend heavyweight winners in the financials and energy sectors than anything else, especially as the growth trade looks to hit increased choppiness. The TSX Index is a financial and energy-heavy index, and, the way I see it, you might as well have more concentration at the top with the more generous dividend payers.
To me, I’d rather have a bigger chunk of the larger-cap dividend champs than a little of everything, especially if it means introducing volatility and suppressing the yield. Given the 0.90 beta (which makes the VDY a tad less correlated to the broad market) and the track record of consistent dividend growth across the top holdings, the VDY outshines just about any other Canadian market ETF.
