Holding a single-stock portfolio is every so often a unique reality for many company founders, employees who got rich through equity ownership schemes, and heirs of concentrated portfolios. However, there’s significant company-specific risk exposure for such highly concentrated portfolios. Financial advisors often spend a lot of time crafting complex strategies to diversify risks and “liquidate” single-stock portfolios without triggering immediate tax consequences.
But what if you aren’t a founder or an heir, and you simply want a low-maintenance, bulletproof investment strategy? If you were forced to choose just one single equity position to buy and hold for the long haul, you would want a secure, foundational long-term holding.
Instead of gambling on an individual business, the smartest move is to cheat the question slightly and buy a single ticker, an exchange traded fund (ETF), that behaves like an entire diversified portfolio, and pays monthly dividends: the iShares S&P/TSX Composite High Dividend Index ETF (TSX:XEI).
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XEI ETF: Instant diversification with Canadian high-dividend-yield blue chips
While the iShares S&P/TSX Composite High Dividend ETF trades like an ordinary stock on the Toronto Stock Exchange, it’s a low-cost index ETF that seeks long-term growth by cheaply bundling a $4.1 billion portfolio of high dividend yield Canadian stocks. Rather than tying your financial future to the fortunes of a single corporation, the XEI ETF spreads your investment risk across 75 different holdings, prioritizing top-tier high-yield Canadian blue-chip stocks.
Furthermore, investors gain wide sector diversification across the strongest pillars of the Canadian economy. The ETF’s largest sector allocations include financials at 32.8%, energy sector stocks at 29.6%, utilities at 12.8%, with communication, consumer discretionary and real estate stocks contributing significant weights at 7.8%, 5.9% and 4.2% respectively.
Best of all, this comprehensive diversification doesn’t come with a hefty fee. The XEI ETF features a low Management Expense Ratio (MER) of 0.22%, which translates to just $2.20 per every $1,000 invested. Keeping your investment costs low leaves much of the net return intact to compound over time.
A reliable monthly dividend growth ETF
For long-term buy-and-hold investors, steady cash flow is a massive advantage. The XEI ETF satisfies this need beautifully by paying out a reliable monthly dividend income, currently boasting an annual dividend yield of 3.6%.
Even better, these payouts may keep growing because most of the ETF’s index constituents are proven dividend growth stocks. For instance, its holdings include utility giant Fortis stock, which has raised its dividends every single year for 52 years and counting.
In fact, at the time of writing, about 45% (nearly half) of the XEI ETF’s holdings are among the 96 constituents of the premium iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (TSX:CDZ). This means nearly half of XEI’s portfolio consists of elite dividend stocks that have successfully raised their payouts consistently over the past five consecutive years. This high-quality roster has driven XEI’s overall dividend to grow by a staggering 130% since 2011.
Tremendous historical outperformance
The XEI ETF is much more than just a defensive income play — it has proven to be a total return powerhouse. Year-to-date, the ETF has already generated an impressive 22.4% total return.
Looking at the bigger picture, since its inception in 2011, investors who bought and held the iShares S&P/TSX Composite High Dividend Index ETF could be sitting on a stellar 335% total return on this single ETF position. On a total return basis, since its 2011 inception, the XEI ETF has comfortably outperformed the broader S&P/TSX Composite Index’s total return of 291%.
When you break down those historical gains, the XEI ETF’s monthly dividend did the heavy lifting, supplementing a 99% capital gain to deliver that massive total return.
The Foolish bottom line
If you are looking to invest in a single ticker that offers comprehensive sector diversification, low management fees, consistent monthly cash flow, and long-term historical outperformance, the XEI ETF appears appealing. It’s an eligible foundational holding to buy and hold for the long haul, even in registered accounts.
That said, if one insists on buying just one pure stock today, our in-house analysts have curated high conviction lists of potential multi-baggers, making the investment research process less time consuming, and the wealth building journey more exciting.
