If You’re Not Investing in This Winning ETF, You Need to Ask Yourself Why

iShares Core MSCI Canadian Quality Dividend Index ETF (TSX:XDIV) stands out as an ETF worth buying up for more reasons than one!

| More on:
Key Points
  • Keep ETF investing simple and low-cost, since many newer TSX ETFs add complexity (and higher fees).
  • XDIV stands out as a low-fee Canadian quality dividend ETF (0.11% MER) with a 3.33% yield, monthly payouts, and a focused basket of 21 dividend growers led by financials.

There are a lot of exchange-traded funds (ETFs) to pick from on the TSX Index these days. And the options go well beyond just index ETFs. With sector ETFs, factor-based ETFs, active ones, income-boosting covered call ETFs, and even a combination (covered call sector ETFs), there’s something for everyone. But, in my view, I’m a believer in keeping costs low. That means ensuring that you’re getting some good mileage from every basis point (bp) of management expense ratio (MER) you’ll pay.

Indeed, just because the selection has grown does not mean you need to own a piece of everything or even know about new ETFs that have landed unless, of course, you’re in a target audience that needs something very specific and is willing to pay up for it. Personally, though, I have no issue with sticking with simple, low-cost products that mirror something like the S&P 500, hedged or unhedged.

space ship model takes off

Source: Getty Images

So many ETFs are raining down on the TSX. But what actually is worth buying up here?

For risk takers, there are leveraged ETFs that might be a suitable alternative for traders who usually jump in and out of stocks or options. Personally, I’d steer clear of excessively leveraged ETFs, given the risks and how things could backfire in a hurry for traders caught on the wrong side of a reversal.

Though modest amounts of leverage (think 25% cash leverage ETFs) might make sense for some looking to raise the bar on their risk for a shot at more reward, I think that it’s really hard to justify the added steps, which only add to the MER. Indeed, it’s not cheap to have the use of leverage, keep things equal-weighted, actively pick stocks, or implement some kind of covered call strategy.

Such techniques might seem tactical, but unless you’re willing to accept the added risks and higher MERs, I think there’s no shame in keeping things simple. If anything, more selection means more competitive pressure on prices!

iShares Core MSCI Canadian Quality Dividend Index ETF

In terms of a stellar ETF fit for investors, I think something like iShares Core MSCI Canadian Quality Dividend Index ETF (TSX: XDIV) is worth knowing about. As you may know, I’m a huge fan of the Canadian dividend ETFs out there.

And while the XDIV has ample overlap with comparable products on the ETF market, I must say that in terms of cost (MER), this ETF stands out ahead of the pack. It’s so competitively priced that it gives a TSX Index or S&P 500 index fund a run for its money. With an MER of 0.11%, the XDIV sets a new low bar for dividend ETFs, which, I think, could be the new standard.

As expected, you’re getting a lot of big bank exposure. But what’s interesting is that the insurers are also in the top 10. Indeed, the financials have been roaring higher, and it’s not just about the big banks! While the number of holdings might be rather limited (only 21 stocks at the time of this writing), I must say that every name carries weight, not just in terms of yield, but also in terms of dividend growth.

All considered, I like the 3.33%-yielding ETF and think it’s a fantastic, low-cost option not only for investors who want a monthly payout (yes, the XDIV pays monthly as well, which is something else it has over competitors), but for steady appreciation potential (XDIV is up over 60% in two years in a rather smooth upward line).

Quality dividend payers at a rock-bottom MER. That’s all you could really ask for as a passive-income investor!

Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Dividend Stocks

alcohol
Dividend Stocks

Is Your TFSA Big Enough to Retire Comfortably?

A six-figure TFSA can look huge until it has to fund decades of real-life retirement spending.

Read more »

Nurse uses stethoscope to listen to a girl's heartbeat
Dividend Stocks

Want Monthly Income? Here’s a 7% Dividend Stock to Consider

Monthly dividends feel great, but the real test is whether the business generates enough cash to keep paying them.

Read more »

man in bowtie poses with abacus
Dividend Stocks

How Does Your TFSA Compare to the $109,000 Milestone?

To build your TFSA, contribute regularly, invest for the long term, and give compounding time to work.

Read more »

Person holding a smartphone with a stock chart on screen
Dividend Stocks

If You Own BCE for Income, You Need to Compare it With This Dividend Rival

A big dividend yield can feel comforting, but it can vanish fast if cash flow and debt don’t cooperate.

Read more »

hand stacks coins
Dividend Stocks

IMO, These Are the Best Canadian Dividend Stocks to Buy Now

These are three of the best Canadian dividend stocks to buy now for reliable income, defensive businesses, and long-term upside.

Read more »

dividend stocks are a good way to earn passive income
Dividend Stocks

TFSA Passive Income: 1 Top TSX Dividend Stock for Seniors to Consider Now

This stock has delivered annual dividend growth for decades.

Read more »

customer fills up car with gasoline
Dividend Stocks

Cash Feels Safe, Until You See What Inflation and Compounding Have Taken

Cash can feel “safe” because the balance doesn’t change, but inflation quietly erodes what it can buy over time.

Read more »

A plant grows from coins.
Dividend Stocks

High-Yield Dividend Stocks in Canada for Beginners

These Canadian companies have strong fundamentals, resilient earnings, and are better positioned to sustain their high yields.

Read more »