This particular fund’s investment appeal centers on its exceptional dividend growth potential and the robust financial health of its underlying holdings. The fund’s holdings have demonstrated excellent earnings resilience, with many companies increasing their dividend payouts even during challenging economic periods.
The fund’s focus on high-quality dividend payers positions it well for continued outperformance. Meanwhile, Canadian dividend stocks have historically provided strong risk-adjusted returns, and the current environment of moderating interest rates creates a favourable backdrop for dividend-focused strategies. With the Bank of Canada maintaining a dovish stance and potential for further rate cuts, dividend stocks become increasingly attractive relative to fixed-income alternatives.
ISHARES CANADIAN SELECT DIVIDEND INDEX ETF (Toronto symbol XDV; buy or sell through brokers; ca.ishares.com) holds 30 of the highest-yield Canadian stocks. The ETF also considers dividend growth and payout ratios to make its selections.
ETFs trade on stock exchanges, just like stocks. So, you can buy or sell, or sell them short, any time the market is open. In contrast, you can only buy or sell a mutual fund at the end of the day, and you can’t sell a mutual fund short.
Unlike conventional funds, ETFs don’t force you to share in the costs of trading that the fund does to accommodate buying and selling by other investors when they enter or leave the fund. In addition, when a conventional fund sells a stock at a profit, you and other fund holders are liable for capital gains taxes on your share of that gain, even though you still own the fund. This is rarely a problem with ETFs, since they rarely trade. They just aim to mirror the index.
Top holdings support the dividend sustainability of this ETF
Meantime, most market indexes are set up for investors so that the stocks in the index are those with the highest market capitalization and are also the most widely traded. However, the iShares Canadian Select Dividend Index ETF focuses on the 30 stocks that it sees as having the highest dividend yields; it also considers their prospects for dividend growth and the sustainability of their dividend payouts. As a result, you pay a higher MER.
The weight of any one stock is limited to 10% of the fund’s assets. Its MER is 0.55%. The ETF which began trading on September 28, 1999, yields a solid 3.3%.
The fund’s top holdings are Canadian Tire at 9.5%; Bank of Montreal, 7.0%; Royal Bank, 6.7%; National Bank, 5.8%; TD Bank, 5.2%; Bank of Nova Scotia, 4.8%; CIBC, 4.7%; and Cogeco Communications, 4.1%.
Recommendation in Canadian Wealth Advisor: iShares Canadian Select Dividend Index ETF is a buy.
