Exchange-traded funds have revolutionized investment accessibility since their introduction, offering several distinct advantages over traditional investment vehicles. One of the primary benefits is portfolio diversification, which allows investors like you to gain exposure to numerous securities through a single transaction.
The cost efficiency of ETFs represents another significant advantage. Most ETFs follow an index, resulting in lower management fees and operating expenses compared to actively managed mutual funds.
ETFs also offer trading flexibility. They trade like stocks throughout the day on exchanges, allowing investors to purchase or sell shares at current market prices rather than at the end of the trading day like mutual funds.
iShares Canadian Select Dividend Index ETF is a fund that focuses on high-yield Canadian equities with sustainable income generation criteria worth checking out. We like its management expense ratio (MER) and management approach – it’s an attractive option with a monthly distribution schedule and competitive yield.
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.
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 high 3.6%.
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 fund’s top holdings are Canadian Tire at 8.3%; Bank of Montreal, 6.9%; Royal Bank, 6.5%; National Bank, 5.3%; TD Bank, 4.8%; Bank of Nova Scotia, 4.7%; BCE Inc., 4.4%; Cogeco Communications, 4.3%; CIBC, 4.2%; TC Energy, 4.0%; and Sun Life Financial, 3.8%.
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XDV: Follows a targeted strategy aimed at boosting your income
More traditional income-oriented ETFs such as the iShares S&P/TSX 60 Index ETF (XIU) offer you broad exposure to Canada’s largest companies through a passive investment approach, with a notably low MER of 0.18%. Its diversified holdings across major sectors and blue-chip companies make it an attractive core holding for long-term investors seeking market-representative returns.
In contrast, the iShares Canadian Select Dividend Index ETF (XDV) employs a more targeted strategy, focusing on 30 high-yield Canadian stocks with strong dividend characteristics. With a higher MER of 0.55%, it offers a more specialized approach for income-focused investors. The fund’s methodology, which considers dividend growth and payout ratios.
Both ETFs serve distinct investment objectives: XIU offers broad market exposure with minimal costs, while XDV caters to income-seeking investors willing to pay higher fees for a more focused strategy. For investors building a diversified portfolio, understanding these differences is crucial in aligning their investment choices with their financial goals and risk tolerance.
Recommendation in Canadian Wealth Advisor: iShares Canadian Select Dividend Index ETF is a buy.
