The iShares S&P/TSX Composite High Dividend Index ETF (TSX:XEI) offers investors a compelling combination of a high 4.9% dividend yield and a low-cost structure. The fund focuses on generating steady monthly income for shareholders, and its impressive results this year (the fund is up 15%) are tied to a portfolio heavily concentrated in Canada’s energy and financial sectors.
While the ETF holds 75 different stocks, it is more top-heavy than many of its peers. Several key companies account for around 5% of the fund’s total assets, including major dividend payers like Enbridge, TC Energy, Canadian Natural Resources, and Toronto-Dominion Bank. The fund’s low management fee of just 0.20% ensures that more of the returns stay in investors' pockets, making it an efficient vehicle for long-term income generation.
Investors should be aware, however, of the fund’s significant sector concentration. Energy stocks make up just under 30% of the portfolio, and when combined with financials, these two sectors account for roughly 60% of the ETF’s holdings. Adding in the 14% allocation to utilities brings the total concentration in just three sectors to nearly 75%. This lack of broad diversification is a key trade-off for its high yield and recent outperformance.
For investors seeking a high monthly dividend stream and who are comfortable with significant exposure to the Canadian energy sector, this ETF can be an excellent option to hang on to. It has been doing well this year and that trend could continue next year, especially as investors looking for safety in dividend stocks.
