If you are interested in an ETF that holds dividend-paying stocks, you might be interested in the news that the BMO Canadian Dividend ETF (TSX: ZDV) started trading just recently. The ETF holds 50 stocks that are selected based on dividend growth, dividend yield, payout ratio and liquidity and weighted by yield. The portfolio is then weighted by yield and the portfolio is rebalanced and reconstituted twice every year.
ZDV aims to undercut the two largest existing dividend ETFs – the iShares Dow Jones Canada Select Dividend ETF (TSX: XDV) and the Claymore S&P/TSX Canadian Dividend ETF (TSX: CDZ) by charging a management fee of 0.35%. In comparison, XDV charges 0.50% and CDZ charges 0.60%. iShares also has the S&P/TSX Equity Income ETF (TSX: XEI) in its line up. XEI’s management fee is 0.55%. XDV, CDZ, XEI and ZDV yield 4.08%, 3.12%*, 4.1% and 4.25% respectively.
So, which one to choose? Other than the fact that CDZ belongs in the bottom of the pack, it is not clear which of these ETFs will be a suitable holding. CDZ’s yield is far too low for a “dividend” ETF considering XIU yields 2.36%. It’s not easy making a choice between the other ETFs because the holdings are wildly different owing to the different stock selection criteria their respective indices employ. Worse, apart from XDV which keeps turnover low by making it difficult for a holding to drop out of the selection set, the other dividend ETFs will have high turnover. But XDV is not without its own set of flaws either. Financials make up more than half the holdings and the big banks alone account for more than a third of the fund.
XDV – okay MER, low turnover but high concentration in financials and banks.
CDZ – high MER, high turnover, low dividend yield.
ZDV – low MER, high turnover (?), new fund
XEI – high MER, high turnover, well diversified, relatively new fund, low volume.
* – Originally, CDZ’s yield was reported as 2.78%. It was incorrect. Thanks to reader DM for pointing it out.