# Income portfolio



## bettrave (Jan 10, 2013)

Do you have suggestions on what to buy tu build an income portfolio?
Would it be built diffently for a TFSA and a taxable account?
Thanks.


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## andrewf (Mar 1, 2010)

Set up a risk-appropriate diversified asset allocation of index funds. Use the distributions along with the periodic sale of units to generate income.

Done! 

Whether you generate income by getting dividends, interest, return of capital or capital gains (through selling units) is immaterial.


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## bettrave (Jan 10, 2013)

Would it be better to use an ETF like XIC that tracks TSX or an ETF live CDZ that focuses on dividend?


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## Squash500 (May 16, 2009)

bettrave said:


> Would it be better to use an ETF like XIC that tracks TSX or an ETF live CDZ that focuses on dividend?


 IMHO the XIC isn't suitable for an ETF income portfolio because the yield isn't high enough. An ETF like CPD would be good in a taxable account but not so good in a TFSA. Some good ETF's to buy for an income portfolio include CPD, XCB, XTR, XRE, XDV, CDZ etc. It all depends what your asset level is and when you need the income etc.


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## GoldStone (Mar 6, 2011)

Squash, XTR monthly distribution is at risk. I posted the calculation a few weeks ago. You saw it. The equity portion of XTR has to return 10% to support the distribution. If you believe this is sustainable, the rational thing to do would be to dump XTR and go 100% equities.


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## andrewf (Mar 1, 2010)

Squash500 said:


> IMHO the XIC isn't suitable for an ETF income portfolio because the yield isn't high enough. An ETF like CPD would be good in a taxable account but not so good in a TFSA. Some good ETF's to buy for an income portfolio include CPD, XCB, XTR, XRE, XDV, CDZ etc. It all depends what your asset level is and when you need the income etc.


Squash, read what I wrote again:

"Whether you generate income by getting dividends, interest, return of capital or capital gains (through selling units) is immaterial. "

The distribution yield is mostly irrelevant. What matters is total return.

bettrave:

I worry that some of the dividend ETFs are too concentrated in a few sectors. The TSX has the same problem on a smaller scale. It's a good idea to diversify internationally as well.


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## james4beach (Nov 15, 2012)

bettrave said:


> Do you have suggestions on what to buy tu build an income portfolio?
> Would it be built diffently for a TFSA and a taxable account?


Yes it would be different between a TFSA and taxable account. For instance highly taxed fixed income (bonds, GICs) make more sense in the TFSA, while dividend earning stocks can be fine in a taxable account due to preferential tax treatment.

Income portfolio could mean just about anything. Could you maybe give some context of what you mean and intend? Some questions for you:

1) Do you have existing investments elsewhere? For instance do you already have a bunch of stocks/mutual funds elsewhere? If so then I would presume you're not looking to buy more stocks/equities since you already have lots of exposure to them.

2) Are you willing to take market risk and risk of losing capital? Many of the instruments people are suggesting could potentially fall 30% to 50% in case of market turmoil.

3) What's the level of overall risk you're looking to take? Do you absolutely want to leave your money intact (e.g. GICs) or are you willing to risk losing your money, in return for slightly higher yield rates? Give us a sense of how important this capital is to you... is it your core retirement savings that you must preserve, or is it excess money beyond your other means (e.g. in addition to pension)

4) With current interest & dividend rates, it's very difficult to get anything more than 3% to 4% no matter what asset you buy. Are you trying to get something more?

5) If you're putting in say 100K capital, do you want to leave that capital intact or would you be happy drawing down that amount over time? For instance if your investments earn 4% and you draw out another 5% a year, your portfolio can provide a 9% yield cashflow. With this scheme your capital will be gone (left with $0) in 20 years. Is that suitable for your purpose?

6) Besides simply drawing capital out of your original amount, there are only 3 potential sources of 'income': capital gains (stocks rising/falling), fixed-interest payments (savings accts, GICs, bonds), and dividends paid by companies (stock dividends). Is there a particular are you want to focus on, or are any of these suitable for you?


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## Squash500 (May 16, 2009)

I'm not trying to get in an argument with you guys--LOL. Personally I'm in semi-retirement and my investment needs are probably a 100% different then other DIY investors on this site. The benchmark that I'm personally trying to beat is 2.45% on my entire portfolio---which is the TDW best rate on a 5yr GIC. My entire portfolio includes cash account, TFSA and RRSP.

I also got a lot of my ideas from Alison Griffiths book which I've mentioned a few times already. Right now so far in 2013 my entire portfolio is doing better than 2.45%. Who knows what will happen tomorrow in the market? I'm also saving a fortune by not having a financial advisor. That means I can afford to make a few mistakes....for example on the XTR and still be OK.

I must have read at least 50 financial books.....and every author says something different. I guess what I'm trying to say is that they're no set rules. For example....I choose not to diversify internationally. Whether I'm right or wrong is totally my responsibility as I have no one to blame but myself if I'm wrong.


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## james4beach (Nov 15, 2012)

Squash500: I don't have any specific criticisms of you. And I'm not saying XTR is a fraud or will lose money, just that iShares is being misleading and tricky (3.7% earnings + 2.1% ROC) = illusory high distribution, and nothing special you can't get from regular stock & bond mix


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## Squash500 (May 16, 2009)

james4beach said:


> Squash500: I don't have any specific criticisms of you. And I'm not saying XTR is a fraud or will lose money, just that iShares is being misleading and tricky (3.7% earnings + 2.1% ROC) = illusory high distribution, and nothing special you can't get from regular stock & bond mix


James I always enjoy reading your excellent comments. I totally agree with you that ishares can be very misleading and tricky and not just with the XTR. Thanks to your very thorough research on the XTR....I might lower my exposure to the XTR a little bit and buy another ETF instead. I'm going to re-read your very well done post on the XTR MER again before I make any furthur decisions.


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## andrewf (Mar 1, 2010)

iShares can only trick you if you let yourself be lured by yield.


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## bettrave (Jan 10, 2013)

What's wrong with iShares???

I don't mind losing capital.
I'm focusing on having more revenu more than growing my capital.
If I sell my ETF to have money, I'll have to pay commission fees.
I would invest about 25,000$ in a TFSA and 5,000$ in a taxable account.


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## andrewf (Mar 1, 2010)

Hate to say it, but you're not going to get any real income from $30,000.


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## fatcat (Nov 11, 2009)

bettrave said:


> What's wrong with iShares???
> 
> I don't mind losing capital.
> I'm focusing on having more revenu more than growing my capital.
> ...


nothing wrong with ishares ... can i ask you what your time horizon is for your investments ? ... how many years away from retirement are you ?


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## gibor365 (Apr 1, 2011)

For TFSA you shouldn't buy US equities as you will be paying witholding tax of dividends 15%, as an alternative you can split your 20K for TFSA, betwee: iShares U.S. High XHD Dividend Equity Index Fund (CAD-Hedged) - imho they have very good holdings, Canadian telecom (BCE, RCI.B or T), one Canadian bank (or ZEB to cover all 6) and utility ETF (like ZUT). ... 5K into each.


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## gibor365 (Apr 1, 2011)

Squash500 said:


> James I always enjoy reading your excellent comments. I totally agree with you that ishares can be very misleading and tricky and not just with the XTR. Thanks to your very thorough research on the XTR....I might lower my exposure to the XTR a little bit and buy another ETF instead. I'm going to re-read your very well done post on the XTR MER again before I make any furthur decisions.


imho this is nothing wrong to have small allocation (up to 5-10% of portfolio) in XTR, who knows how long low-interest environment will continue... Squash, are you buying only ETFs? no individual stocks? you can easily create your own portfolio with high quality dividend stocks that would be yielding more than any ETF


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## andrewf (Mar 1, 2010)

I feel like I'm bashing my head against the wall.


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## Cal (Jun 17, 2009)

I think the O should consider James Q's on the first page, also in relation to his, timeline for retirement/needing the income, length of needing retirement, how much would be needed to live off of per year. also taking into account the possibility to a pension (not mentioned).

Personally I would work backwards and figure out how much I needed in retirement, and what amount of funds at what rate of return would generate that amount.

I would consider all investments, in all accounts as one portfolio, and would have different holdings in different accounts for various reasons. (ie: US equites in RRSP, REIT's in TFSA....)


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## OhGreatGuru (May 24, 2009)

For taxable accounts, RBC Monthly Income Fund;
For registered accounts, 50% RBC CDN Government Bond Index Fund & 50% RBC Canadian Dividend Fund (RBC Monthly Income is no longer available in registered accounts, but this combination will emulate its performance pretty well.)


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## james4beach (Nov 15, 2012)

Although I don't buy mutual funds myself, I like the portfolio construction of the CIBC Monthly Income Fund as a long-term investment (except it lacks utilities). However I wouldn't buy it because you can do it cheaper and more transparently with ETFs.

These two will replicate the CIBC fund (and indeed most Income Funds) closely:

54%	XIU (TSX 60 stock index)
46%	ZAG (broad bond index)

I'm not saying that's a great income portfolio... but this is similar to what most of the Income mutual funds hold, including the CIBC fund which has had pretty good long-term performance.


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## doctrine (Sep 30, 2011)

Those ETFs will replace the CIBC Monthly Income Fund, with the exception they won't take 1.48% in a MER (only about 0.35% weighted), and won't sell off nearly 4% of the assets every year to make the high distributions.


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## james4beach (Nov 15, 2012)

doctrine said:


> Those ETFs will replace the CIBC Monthly Income Fund, with the exception they won't take 1.48% in a MER (only about 0.35% weighted), and won't sell off nearly 4% of the assets every year to make the high distributions.


Agreed! Hmm one weird thing I noticed is that ZAG, compared to XBB, has notably more return of capital in its distribution tax characteristics. XBB may be a better choice (let's see what the 2012 distribution tax result look like).

Either way though, this is a strong combination I would happily recommend to a friend who wanted this kind of fund. Aren't the fees even lower than you wrote?

50/50 XIU/XBB combination gives (0.18+0.33)/2 = 0.26% MER giving you a 1.22% fee savings (= annual performance boost) for the lifetime of your investment.


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## doctrine (Sep 30, 2011)

Whoops, yeah the average weighted yield is about 0.25% not 0.35%. Either way, yes it would be better, although you wouldn't have as much "income". But you'd also be more likely to have capital gains and increasing income with the XIU.


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## Soils4Peace (Mar 14, 2010)

What andrewf said - all of it.

Given the small portfolio size why not go with TD e-series funds. MERs are between .30 and .55% and you can make partial redemptions after 30 days to give yourself an income stream. You don't need to narrow your choices to income focused ETFs that have trading fees and higher MERs.


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## gibor365 (Apr 1, 2011)

btw about ETF trading fees... I read comment on seekingalpha.com that TD Ameritrade in US allow trading more than 100 ETF without trading fees..... what the hell TDW charging for every ETF trade!!! This is ridiculous!


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## james4beach (Nov 15, 2012)

Soils4Peace said:


> Given the small portfolio size why not go with TD e-series funds. MERs are between .30 and .55% and you can make partial redemptions after 30 days to give yourself an income stream. You don't need to narrow your choices to income focused ETFs that have trading fees and higher MERs.


Yes that would do it. Same basic mix (one stock index and one bond index) and you're done. With the e-series you can easily do occasional selling to provide the "income" stream you want without paying those extra ETF trading costs (gibor: I didn't know Americans get to do that for free!).

To make it more complete, I would also throw some GICs into the mix assuming you don't already have GICs elsewhere. TD Waterhouse has a pretty good GIC list

33% stock index fund
33% in GIC ladder (CDIC-insured)
33% bond index fund

And you're done! Occasionally sell units according to how much cashflow you want to generate. This is just as good as any Income Fund out there, with far less fees. Tweak the weightings as you wish depending how much stocks you have elsewhere. In fact I would go as far as to say that a simple mix like this is *probably superior to most retirement products / annuities*, which are full of tricky clauses, fees, and caveats.


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## james4beach (Nov 15, 2012)

bettrave said:


> What's wrong with iShares???
> 
> I don't mind losing capital.
> I'm focusing on having more revenu more than growing my capital.


I've been thinking about this more. You're saying the cashflow from your portfolio is the main desire, not growing your capital. 

If you're a hands-on person, I would suggest as before the simple 50/50 index fund mix and periodically sell shares, manage cash with TDB8150 or whatever, and thus generate cashflow at whatever rate you want. But given your small portfolio size, the extra fees become a problem. Maybe in your case the iShares & BMO income ETFs are pretty good as the MERs are similar to the e-series index funds anyway, plus iShares/BMO will do the work for you. Downside is they decide your allocations & risk exposure for you - and I'll warn you that their allocations look very risky to me.

I'm thinking of my parents for example. What should they do? I'm not going to let them go to Manulife, IG or a bank where some salesperson gets them into a high-fee mutual fund or ridiculously high fee annuity that basically does my procedure above, while charging them several % in fees. On the other hand, they're not hands-on enough to manage stock orders and cash buffer management themselves.

This is where I surprise myself and suddenly start seeing the value of the monthly income ETFs (XTR and ZMI) which I didn't see before. Now don't get me wrong, the fund companies are very much misrepresenting what these funds are and stuffed them with risky assets... both iShares and BMO dangle a misleading high distribution to try and attract assets, which is wrong (imo). For both ETFs, you have to do a lot of number crunching on your own to figure out what the hell they're actually doing. But once I did the research and understood what's going on, and if I can put aside my anger about the marketing, I can see how these may be good for some investors. They're doing the work that I described above: regularly liquidating assets to generate cash. Personally I don't need investment cashflow, so return of capital (ROC) is pointless for me. But for people like you or my parents who need ROC, those ETFs may be the best option, especially when the only other options are high fee mutual funds and annuities.

Don't trust the yield figures on their web site. Here is my calculation (double check it)

XTR: internally yields 3.67% + liquidates 2.09% of portfolio yearly = 5.76% distribution (after MER)
ZMI: internally yields 3.74% + liquidates 0.73% of portfolio yearly = 4.47% distribution (after MER)

Given these ETFs have risky holdings, no matter which you choose I would balance your portfolio by adding GICs into it! If you want a safer overall portfolio you may want to go with CIBC Monthly Income Fund which I think does something like ballpark: yields 2% + annually liquidates 4% = 5.6% distribution

P.S. the distributions of income funds should never be reinvested. That defeats the whole purpose. The fund exists to provide ROC. The fact that most income fund shareholders reinvest distributions shows you how misunderstood (and misrepresented) these vehicles are, which still makes me upset.


I'm very curious of your thoughts on this. We all have older relatives in this situation. When you can't do it yourself and you need someone else to manage your dividend/interest/ROC mix, what options are there?


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## liquidfinance (Jan 28, 2011)

james4beach said:


> XTR: internally yields 3.67% + liquidates 2.09% of portfolio yearly = 5.76% distribution (after MER)
> ZMI: internally yields 3.74% + liquidates 0.73% of portfolio yearly = 4.47% distribution (after MER)


The more I read about this the more it seems like some sort of ponzi scheme and as long as investors come in after you then your capital will be protected. 
The asset base is growing and not depleting.


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## james4beach (Nov 15, 2012)

liquidfinance said:


> The more I read about this the more it seems like some sort of ponzi scheme and as long as investors come in after you then your capital will be protected.
> The asset base is growing and not depleting.


The reason I don't think it's a ponzi scheme is that it doesn't depend on new investors. It does, however, depend on the portfolio rising in value (due to the general market rising).

Or maybe what I should have said is that when you see XTR price rising these days, it's not due to new investors. It's due to rising underlying index prices. That's the point with open ended funds anyway... investors coming or going don't cause the price to move.

With the income funds, there is no sudden 'cliff' that would be realized resulting in sharp drops. The process is pretty straightforward: their portfolio earns regular dividend & interest income, but they also sell off shares and distribute those proceeds back to shareholders. That liquidation amount is pretty constant, such as 2% of the portfolio sold in a year.

To put it another way, assume market prices stay constant for stocks & bonds. All you would see with XTR is a steady decline in share price, starting at -2%/yr and increase as the ROC makes up a larger proportion of the payout (so it could possibly become a significant % drop every year). But it would be a smooth decline. As far as I can tell, there's no reason for a ponzi-like sharp drop -- assuming of course the underlying don't crash. My feeling though is that the *underlying* are bubbles (junk bonds and other high yield things) and will one way have sharp declines.

But when that happens, it won't be specific to XTR's structure, it will just be due to its crappy investments.


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## bettrave (Jan 10, 2013)

I could surely buy ETF and just sell some to get some cash.
However, I would have to pay the commission.
If I buy ETF like CDZ and XDV, I would get monthly distribution commission free.
So I was thinking something like:
15% CDZ
15% XDV
15% XPF
15% CYH
20% VSB
20% CHB


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## james4beach (Nov 15, 2012)

bettrave said:


> I could surely buy ETF and just sell some to get some cash.
> However, I would have to pay the commission.
> If I buy ETF like CDZ and XDV, I would get monthly distribution commission free.
> So I was thinking something like:
> ...


Right, if you were to sell ETFs to raise cash, you would incur commissions. What you listed will work too. You're right, the distributions are commission-free (versus selling shares).

In what you listed, double check your sector exposures but I think you have redundancy and financial sector exposure between CDZ and XDV

I would suggest that's too many funds in total, for a rather small portfolio

You may still want to consider the e-series index funds option as you won't have any fees to sell those, and it's still a very low cost way to achieve what you want.


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## andrewf (Mar 1, 2010)

I wouldn't bother with CHB, either. Either use the US-listed high yield ETFs or don't bother...


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## james4beach (Nov 15, 2012)

To shrink the number of ETFs further (besides collapsing CDZ/XDV maybe --> XEI) considering choosing a single bond fund like ZAG (lower risk) or XCB (higher risk). You've already got short-term bonds (low risk) and junk bonds (very high risk) so you can probably average that into one fund that's more in the middle of the risk spectrum.

By the way I can't figure out what the heck CYH holds, but the MER is very high. You could substitute some utilities (ZUT) instead, which you're underweight. Here is just a suggested revised portfolio. Carefully evaluate your sector exposures; this is just off the top of my head, but the number of ETFs is more reasonable now

e.g. XEI, XPF, ZUT, ZAG


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## james4beach (Nov 15, 2012)

Let me point out something about fees, and why it may still make sense to simplify this down further and use the selling-shares method to supplement cashflow

a) With the simple XIU & XBB combination, we mentioned this replicates just about all income funds if you sell off shares. MER is 0.26%

b) If you use the high-distribution funds (XEI, XPF, ZUT, ZAG), even though I optimized it for lower fees, it still has MER ~ 0.49% depending on weightings. Not too bad, really.

If you go with (a) and quarterly sell shares (alternate XIU and XBB), that's probably 4 trades a year x $10 = $40 commissions in a year/$30k account = 0.13% more MER. So for the (a) portfolio plus trading fees for the sales, you have total MER ~ 0.39%

And if you went with (b), the extra fees you pay to the ETF company is worth more like 7 trades... quite a bit.

Assuming I did this calculation correctly, (a) has total MER 0.26 + 0.13 = 0.39% which is still less than the expense for (b). It looks slightly cheaper to go with the simpler portfolio and sell shares as you need to, and probably buffer cash into one of the no-fee savings vehicles like TDB8150. I just wanted to show that the high distribution ETFs don't actually save you commissions. They do save you work, though.

Imagine the implication for a big portfolio like 100k. You're definitely better off using the simple low MER funds, combined with selling shares to raise cash. No contest in terms of fees!


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## Sampson (Apr 3, 2009)

james4beach said:


> The reason I don't think it's a ponzi scheme is that it doesn't depend on new investors. It does, however, depend on the portfolio rising in value (due to the general market rising).


New investors only ensure the payout can be perpetuated.


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## bettrave (Jan 10, 2013)

When I look at total return, CDZ seems to have been better than, this year and past years, XIC and XIU.


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## gibor365 (Apr 1, 2011)

bettrave said:


> When I look at total return, CDZ seems to have been better than, this year and past years, XIC and XIU.


I was thinking about CDZ, but it's 5 top holdings I wouldn't like to hold


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## leeder (Jan 28, 2012)

@ Bettrave: CDZ is a pretty good ETF; however, the yield is not spectacular mainly because dividend stocks are overbought resulting in an increase in stock price. Also, some dividend achievers are low yielding. My personal dividend ETF I own is ZDV (BMO Canadian Dividend). While it is not as balanced in terms of sector allocation, it does have a lower MER. From what I can tell, ZDV performed about as well as CDZ last year.

In terms of fixed income, if you want more yield, perhaps consider corporate bond ETFs. However, I would keep the duration as short as possible to reduce interest rate risk. The ones I've looked at (but do not own) include: VSC (Vanguard short-term corporate bond ETF), CBO (iShares 1-5 year laddered corporate bond ETF), and XSH (iShares dex short term corporate universe & maple fund index). Like others mentioned before, laddered GIC is another approach -- an approach that I prefer.

You can also consider holding a REIT ETF. REITs are somewhat fairly to overvalued, due to people chasing yield these days. However, these trusts keep going up yearly no matter how many times people predict that the REIT bubble will burst. I personally own ZRE (BMO equal weight REITs index), which is a good performer for me.

Finally, in case the Canadian markets crash or if you have RRSP room to spare, you can consider diversifying beyond Canadian borders. Some dividend ETFs include VIG (Vanguard dividend appreciation ETF) and IDV (iShares international select dividend ETF).


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## james4beach (Nov 15, 2012)

I didn't compare the dividends funds (e.g. CDZ) too closely, but this one does have a pretty high MER. Remember you have to subtract MER from the quoted yield

CDZ: 3.07% - 0.67% MER = 2.40% yield ... lower than XIU !
XIU: 2.62% - 0.18% MER = 2.44% yield
XDV: 4.09% - 0.55% MER = 3.54% yield
XEI: 4.58% - 0.62% MER = 3.96% yield
ZDV: 5.65% - 0.39% MER = 5.26% yield


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## bettrave (Jan 10, 2013)

james4beach said:


> I didn't compare the dividends funds (e.g. CDZ) too closely, but this one does have a pretty high MER. Remember you have to subtract MER from the quoted yield
> 
> CDZ: 3.07% - 0.67% MER = 2.40% yield ... lower than XIU !
> XIU: 2.62% - 0.18% MER = 2.44% yield
> ...


Where did you get those numbers?
On morningstar, CDZ has a total return of:
YTD: 5,49%
2012: 8,84%


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## Squash500 (May 16, 2009)

bettrave said:


> Where did you get those numbers?
> On morningstar, CDZ has a total return of:
> YTD: 5,49%
> 2012: 8,84%


I think that James is just talking about the dividend yield and not the total returns of these ETFS. IMHO XDV and CDZ will continue to outperform the XIU on a total return basis for the forseable future simply because the XIU has so many gold, silver and energy stocks as part of its 60 stock holdings.


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## fatcat (Nov 11, 2009)

i come with a distribution yield for CDZ of 3.2% for 2012 that is *after* MER (plus a capital gain of 6.84%)
your numbers are off james
no one will buy a "dividend" fund yielding 2.4%


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## leeder (Jan 28, 2012)

CDZ: Capital gain: about 4.86%; Dividend yield: about 3.17%; Total gain: about 8.03%. Less MER: 0.67%; Total gain in 2012: 7.36%.
ZDV: Capital gain: about 3.73%; Dividend yield: about 4.10%; Total gain: about 7.83%. Less MER: 0.40%; Total gain in 2012: 7.43%.
XDV: Capital gain: about 3.58%; Dividend yield: about 4.10%; Total gain: about 7.68%. Less MER: 0.55%; Total gain in 2012: 7.13%.

Again, just wanted to emphasize that these are 2012 figures. Historical returns are not a good predictor of what will happen in 2013. That said, the returns for ZDV and CDZ are pretty similar. I would rather choose an ETF with lower cost, since that is somewhat controllable than capital appreciation and distribution returns. Personally I am not a big fan of XDV just because, based on my research of that ETF, it is comprised mainly of financial. Thus, it is not very diversified.


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## Squash500 (May 16, 2009)

leeder said:


> CDZ: Capital gain: about 4.86%; Dividend yield: about 3.17%; Total gain: about 8.03%. Less MER: 0.67%; Total gain in 2012: 7.36%.
> ZDV: Capital gain: about 3.73%; Dividend yield: about 4.10%; Total gain: about 7.83%. Less MER: 0.40%; Total gain in 2012: 7.43%.
> XDV: Capital gain: about 3.58%; Dividend yield: about 4.10%; Total gain: about 7.68%. Less MER: 0.55%; Total gain in 2012: 7.13%.
> 
> Again, just wanted to emphasize that these are 2012 figures. Historical returns are not a good predictor of what will happen in 2013. That said, the returns for ZDV and CDZ are pretty similar. I would rather choose an ETF with lower cost, since that is somewhat controllable than capital appreciation and distribution returns. Personally I am not a big fan of XDV just because, based on my research of that ETF, it is comprised mainly of financial. Thus, it is not very diversified.


Leeder....thanks for the info. What ETFS do you like? The ZDV and ZRE etc? I've never personally bought a BMO ETF before but maybe I might start as I like the equal weight indexing approach that BMO applies on some of it's ETF choices.


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## james4beach (Nov 15, 2012)

fatcat said:


> i come with a distribution yield for CDZ of 3.2% for 2012 that is *after* MER (plus a capital gain of 6.84%)
> your numbers are off james
> no one will buy a "dividend" fund yielding 2.4%


Where are you reading 3.2%, how did you calculate that? And what do you mean "for 2012"? Dividend yield is calculated as of today's NAV... as the prices rise, the yield falls.

I think you're talking about distribution and I'm talking about dividends. They're different things. The "distribution" you're looking at is a sum of dividends, capital gains, and return of capital. This becomes misleading, because what the fund _distributes_ is somewhat arbitrary. CDZ could just as easily create a 10% or 20% distribution. XTR distributes nearly 6%, also arbitrary and under the fund's control. That is not a meaningful figure for dividends, because it doesn't tell you *what the stocks earn today* versus their price (that's what yield means).

(I agree that total return is the most important thing. And potential for total return going forward. But I'm focusing on dividend yield here)

Those numbers I listed were the portfolio dividend yields. Dividend yield means: what dividends does the portfolio earn, divided by current NAV. The best figure I see for this on the iShares web site is the "12-Month Trailing Yield" which is 3.07%. The comment beside it clearly indicates this is before fees. So if the stocks earn dividends of 3.07%, subtract MER 0.67% and you get 2.4% dividend yield net of fees.

Is there a better figure available than 12-month trailing yield? I don't see one.


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## james4beach (Nov 15, 2012)

bettrave said:


> Where did you get those numbers?
> On morningstar, CDZ has a total return of:
> YTD: 5,49%
> 2012: 8,84%


I got the numbers from the "yield" box listed on the iShares web site for each ETF.
I'm talking dividend yields, not total returns.


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## leeder (Jan 28, 2012)

@ Squash500: Currently, I'm a bit heavy on the Canadian side, since I hold individual dividend paying Canadian stocks as well. My ETF holdings include: ZDV, ZRE, VTI, VEA, and VWO. I do have a small position in IGT (iShares Gold Trust) as well, but I am looking to sell it when gold prices rebound. I am optimistic that gold prices will rebound, but it is not something I would like to hold long term any more. Aside from IGT, I do not hold anything from iShares. The products are too expensive compared to other ETF products. As for ZDV, if you look into the holdings, you will find that it's heavy on the financial and energy sector (30% and 29% respectively). I balance the Canadian content off with individual dividend paying stocks focusing on other sectors.


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## james4beach (Nov 15, 2012)

leeder said:


> CDZ: Capital gain: about 4.86%; Dividend yield: about 3.17%; Total gain: about 8.03% . . .
> Again, just wanted to emphasize that these are 2012 figures.


Right, and what I keep trying to explain to you guys is that if you're curious about dividend yield, you have to look at the current dividend yield of the portfolio the ETF holds.

The 2012 yield figure is totally irrelevant. I agree that the capital gains have been impressive, no doubt there about CDZ, but if you're curious about *dividend yield* of the fund then I hate to break it to you, today it's very low after fees.


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## james4beach (Nov 15, 2012)

Here's more detail on how I, and iShares, calculates the current dividend yield for CDZ.

The CDZ distributions breakdown from iShares web site shows:
Counting back the most recent 12 months of distribution, you see a total sum of $0.725 in cash distributions. Only cash is considered because the cash comes from dividends, because the other one (year-end reinvested distribution) is often comprised of capital gains. It doesn't originate from dividends.

So the best guess for what CDZ's portfolio of stocks earns is $0.725 annually, divide by current NAV of $23.61, gives 3.07% dividend yield. You can see this is the same number iShares publishes on the main page under "12-Month Trailing Yield". Same calculation for XDV, which has trailing $0.91049 dividends/$22.27 NAV = 4.09% yield.

So those are the dividend yields of the funds, and as iShares indicates they are before considering fees.

The other figures being mentioned in this thread, total return and total performance, are all valid. The funds have *performed very well* (I suspect because yield chasing is in fashion). But a dividend investor has to care about dividend yield, and that's what I'm trying to clarify here.

For the BMO funds, they show the figure as 'portfolio yield' and again you have to subtract MER to see what you're actually going to get from dividends. I suspect many of you are over-estimating how much these funds earn in dividends, at current prices.


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## fatcat (Nov 11, 2009)

cdz distributed 72.5 cents per share in 2012 and reinvested .72 cents in the fund
i derived an average price for the year based on their drip price and came up with 3.2%
their distributions are net of expenses right ?

the 72 cents reinvested be dividends not returned and would be part of the actual "dividend yield" that the fund earns

their 12-month "trailing yield" says it is *before* expenses so that can't be right ....


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## Squash500 (May 16, 2009)

leeder said:


> @ Squash500: Currently, I'm a bit heavy on the Canadian side, since I hold individual dividend paying Canadian stocks as well. My ETF holdings include: ZDV, ZRE, VTI, VEA, and VWO. I do have a small position in IGT (iShares Gold Trust) as well, but I am looking to sell it when gold prices rebound. I am optimistic that gold prices will rebound, but it is not something I would like to hold long term any more. Aside from IGT, I do not hold anything from iShares. The products are too expensive compared to other ETF products. As for ZDV, if you look into the holdings, you will find that it's heavy on the financial and energy sector (30% and 29% respectively). I balance the Canadian content off with individual dividend paying stocks focusing on other sectors.


Thanks for the excellent response leeder....much appreciated.


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## james4beach (Nov 15, 2012)

fatcat said:


> cdz distributed 72.5 cents per share in 2012 and reinvested .72 cents in the fund
> i derived an average price for the year based on their drip price and came up with 3.2%
> their distributions are net of expenses right ?
> 
> ...


Your average price method makes sense if you're looking back at what a 2012 investor got, but it's not the correct way to quote a dividend yield as of today.

It's not clear to me where the fees are mixed into this, but if iShares says their quoted yield is before expenses, I believe them. Part of the fudge factor is in that reinvested distribution. The reinvested distribution is not purely dividends; it's not even purely capital gains. Looking at tax characteristics at bottom of ishares page, notice how in 2010 there were capital gains yet no reinvested distribution at all.

Actually I think I was mistaken. Looking at those month-by-month cash distributions probably isn't too helpful for determining dividends at all. What I'm increasingly learning with these ETFs is that the month to month distribs don't map to anything too clearly.

When in doubt I rely on the iShares yield quote on the main page because they say it's based on last 12 months of income. This is analogous to the issue with bond funds... you can't really look at a monthly distribution to determine yield; you have to read yield to maturity from the fund company, that seems to be the only way to get an accurate real-time yield figure.


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## fatcat (Nov 11, 2009)

james4beach said:


> Your average price method makes sense if you're looking back at what a 2012 investor got, but it's not the correct way to quote a dividend yield as of today.
> 
> It's not clear to me where the fees are mixed into this, but if iShares says their quoted yield is before expenses, I believe them. Part of the fudge factor is in that reinvested distribution. The reinvested distribution is not purely dividends; it's not even purely capital gains. Looking at tax characteristics at bottom of ishares page, notice how in 2010 there were capital gains yet no reinvested distribution at all.
> 
> ...


right, i have never bothered to take any of these too seriously since it really is a constantly evolving calculation ... you look at the numbers from different sources and read what you can and then make your choice ... i never liked accounting and can't be bothered to track it all to closely ... like i have said, i just want the assets line to cross the life expectancy line after the dead part :biggrin:


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## james4beach (Nov 15, 2012)

Agreed, same goal here ... and the ETF accounting has been giving me a real headache for the last week.

Like you, I just want to stretch out my capital as long as I can (and not lose capital)


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