Do you want monthly dividend income, good diversification, and some high yields? The ETFs listed here are great options to put into your tax-free savings account (TFSA) because they are safe investments you can let sit and just watch the dividend income roll in.
BMO Monthly Income ETF
The first ETF is the BMO Monthly Income ETF (TSX:ZMI). It offers a yield of 4.7%, which is far higher than the S&P 500 average of 1.2%. It’s an incredibly high payout and sure enough, you’ll collect a payment every month of the year. Its expense ratio of 0.20% isn’t too high, especially when you’re locking in such a high yield; there’s plenty of incentive to just hang on to this one.
This ETF holds a position in other ETFs, so you’re getting a lot of diversification here as the fund is invested in other BMO funds which are focused on dividends. There are some good high-yielding options in here, giving you balance of fixed income and equity positions. But in terms of overall sector exposure, it’s financials that account for 27%, followed by tech at 17%, and healthcare is the last big sector, accounting for around 11%. It’s a pretty diverse portfolio and it’s heavily focused on North America, with Canadian and U.S. stocks taking up the lion’s share of the stocks you’ll have exposure to.
This year, the ETF has risen by 5% thus far and that doesn’t include its dividend, so it’s a solid investment which can generate recurring cash flow and also have the potential to rise in value. If you want to collect $1,000 in annual dividends from this ETF, you’d need to invest around $21,300 based on its current yield.
iShares Canadian Dividend Aristocrats Index
Next up is the iShares Canadian Dividend Aristocrats Index (TSX:CDZ), which yields 3.6%. It management fee of 0.60% is also a bit high. But what’s attractive about this fund is that it strictly focuses on high quality Canadian dividend paying companies, which have been increasing their dividends annually for at least five straight years. The term Dividend Aristocrats refers to dividend growth stocks with strong track records for growing their payouts. The allure of these types of stocks is that your dividend income can increase over time, because these companies regularly raise their dividends.
That’s not a guarantee of course, but these are among the safer dividend stocks you can own. There’s more of a methodical process in selecting these stocks, hence the higher fees that come with it. There are 88 holdings in the ETF, but the largest one, Allied Properties REIT, accounts for just under 4%, so there’s plenty of diversification here and not a lot of exposure to any single stock. Telus and Toronto-Dominion Bank, a couple of high-yielding TSX stocks, are also among its top holdings.
In this ETF, financials dominate the fund, accounting for 23% of all stocks, followed by energy at 15%, real estate at 13%, and utilities at just under 11% round out the sectors in double digits. Overall, however, there’s some good diversification with this ETF and by focusing on Dividend Aristocrats, it can be a potentially more attractive option if you want some additional safety.
This year, the ETF has risen by 13%, which is a great return to go along with its monthly dividend payments. To collect $1,000 in annual dividends from this ETF, you’ll need to invest about $27,800 based on its current yield.
iShares Composite High Dividend Index ETF
Last but not least on this list is the iShares Composite High Dividend Index ETF (TSX:XEI). This TSX-based ETF has the highest yield on this list at 5.1%. Its goals are simple: generate monthly dividends and charge low fees. Its management fee is 0.20% which is in line with other low-cost funds you’ll find on the TSX, similar to the BMO fund that was first on this list.
There are 75 holdings in this fund, but one thing you’ll notice right away is that it is a bit more top-heavy than the other ETFs. There are multiple stocks that account for more than 4% of its overall holdings, and some are at over 5%. TD, Canadian Natural Resources, TC Energy, and Enbridge are the big names that have a weight of 5% or more. Those are fairly safe dividend stocks, however, so those are stocks you may not mind having a big position in, especially if it means you’re getting a great dividend along the way.
But there’s no denying that energy stocks play a much bigger role here; they account for 30% of the fund’s holdings. And when you add in financials, that’s around 60% in those two sectors. Utilities add in another 13% so that’s almost three-quarters of the ETF in three sectors. It’s not as diverse as the other funds here and so you’ll want to consider whether you’re okay with energy stocks in particular making up so much of the portfolio. Canadian bank stocks are among the safest dividend stocks out there so that’s a non-issue but it comes down to whether you want all that exposure to energy stocks. If you’re okay with that, then this ETF can give you the best of both worlds – a high yield and low fees.
This ETF is also the best-performing one on this list. As of Tuesday’s close, it’s up over 15%. That’s a great return and it’s probably that exposure to energy stocks that’s helping it.
Because of its high yield, you’ll need the least amount of money to invest in this ETF to collect $1,000 in annual dividends. Investing around $19,600 would be enough.