Are you a Canadian dividend investor?
If so, you might spend a lot of time thinking about individual dividend stocks.
It can be a lot of fun to look through lists of dividend stocks and mentally work out how much income their yields translate to with your level of savings.
However, picking individual dividend stocks comes with risks. Sometimes companies cut their dividends. Very frequently, the decision to do so is followed by a selloff in the stock whose dividend was cut, as the stock had attracted a dividend-hungry investor base prior to the cut.
So, picking individual dividend stocks is risky. Fortunately, there is a monthly paying dividend exchange-traded fund (ETF) with a 2.9% yield that eliminates your need to pick stocks by giving you diversified exposure to the Canadian high-yield large-cap universe.
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Vanguard’s Canadian high yield ETF
The Vanguard FTSE Canadian High Yield Index ETF (TSX: VDY) is a Canadian ETF made up of high yielding Canadian dividend stocks. By “high yielding” I mean merely “above-average yielding”; the fund does not have an ultra-high yield. It does however have a higher yield than the Canadian markets overall. Also, it pays its dividend on a monthly rather than quarterly schedule!
Holdings
VDY’s portfolio mainly consists of the kinds of stocks you’d expect to find in any Canadian index fund: bank stocks, utility stocks, energy stocks etc. The only difference between VDY and your typical TSX 60 ETF is that VDY is based on the FTSE Canadian High Yield Index, which screens out low or no-yield stocks. The result is that the fund has a higher yield than what you’d get on any TSX 60 or TSX Composite Fund.
Dividend potential
The VDY ETF currently pays a dividend of about $0.19 per month (it varies somewhat month to month). This amount works out to $2.23 per year. VDY units cost $77.41 as I write this. That gives VDY a 2.9% dividend yield. So, you can get about $2,880 per year or $240 per month by investing $100,000 in it. Not a bad result given what the broader markets are yielding these days.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| VDY ETF | $77.41 | 1,292 | $0.186 per month ($2.232 per year) | $240 per month ($2,880 per year) | Monthly |
Fees and other considerations
If you’re going to invest in a fund like VDY, you need to keep the fees in mind. While VDY is a true index fund, tracking the FTSE Canadian High Yield Index, it doesn’t have the kind of rock-bottom fee you’d find on a typical S&P 500 fund. Instead, it has a 0.22% management fee, which is “middle of the pack” by ETF standards. It’s not bad, but it’s not the lowest imaginable fee either.
The fund’s bid-ask spread, which is usually about 0.2%, is likewise low-ish but not rock bottom. The bid-ask spread is a source of “hidden fees” as market makers pocket it when they execute a trade for you. VDY’s fee and spread are its two main forms of “cost.” So, VDY scores reasonably but not exceptionally well on fees and costs overall.
