The lure of ETFs is simple. All investors need to do is buy a few different funds and they get exposure to thousands of different companies.
Dividend investors have traditionally shunned ETFs, content to actively pick and choose the best stocks for their portfolios. But is this really the best strategy, especially when it’s easy to buy ETFs that focus exclusively on dividend paying stocks?
One such ETF is the iShares Canadian Select Dividend ETF (TSX:XDV), which holds 30 of the highest yielding stocks on the TSX. Top holdings include CIBC, Agrium, BCE, and TransCanada.
Shares of this ETF currently yield 4.2%, a nice payout in today’s low interest rate world.
But there are issues with this ETF. More than 55% of assets are invested in financial companies. And the management fee is 0.55%, which is a little high.
The BMO Canadian Dividend ETF (TSX:ZDV) isn’t quite as large as its iShares cousin--assets under management are $635 million, compared to twice that much in the iShares fund--but it does offer a few advantages.
Firstly, it has a lower management fee, coming in at 0.35%. 20 basis points is a lot in the world of ETFs.
It’s also more diverse, with 51 holdings. Its top holding, Capital Power, is only 2.95% of the fund. CIBC, the top holding in the equivalent iShares fund, makes up almost 8% of its assets. Yields of the two funds are identical.
The lower management fee and better diversification of the BMO offering give it a distinct advantage over its iShares competition. Perhaps dividend investors should look at adding it to their portfolio.
