# Best Canadian dividend ETF for unregistered portfolio



## nathan79 (Feb 21, 2011)

Since I'm in a low tax bracket I've been considering a Canadian dividend ETF. I've been interested in ZDV... decent yield, but I noticed that some of the distributions in 2013 were return on capital and non-eligible dividends. Of course I'd rather just have 100% eligible dividends. Are there any better choices than ZDV?

The more I read the more it seems that picking individual stocks is the more attractive option, but I'd rather not do that since I only have 20K or so to invest.


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## AltaRed (Jun 8, 2009)

Generally speaking, most Equity ETFs will have minor components of ROC and non-eligible dividends from time to time because one or more underlying stocks in the ETF will have that in their own distributions. A REIT will have some ROC and Enbridge had a small component of non-eligible dividend in its dividends last year. I would not worry about it.


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## humble_pie (Jun 7, 2009)

nathan79 said:


> Since I'm in a low tax bracket I've been considering a Canadian dividend ETF. I've been interested in ZDV... decent yield, but I noticed that some of the distributions in 2013 were return on capital and non-eligible dividends. Of course I'd rather just have 100% eligible dividends. Are there any better choices than ZDV?
> 
> The more I read the more it seems that picking individual stocks is the more attractive option, but I'd rather not do that since I only have 20K or so to invest.



i ardently believe that picking individual stocks is, in the long run, the more attractive option. It's also easier to manage ACB-wise & tax-wise imho.

the reason for the appeal is that, in canada, the universe of hi-quality dividend payors is fairly small. If one eliminates the outlying categories - the odd illiquid high payor, the reits & the structured trusts - one is left with what i call Good Old Stuff. Mostly banks, big energy, big agriculture, telcos, a few consumer supermarket & pharmacy chains, mining stocks on a cyclical basis.

their news is all over the media, there is even plenty discussion on cmf forum, over 10 or 20 years it's hard to make a mistake picking some of these.

therefore i don't see the value in having em bundled into an etf. This structure just adds unnecessary complication imho.

i feel that, with $20k in a portfolio, it might be useful to divide between an etf & one or maximum 2 dividend-paying stocks. Stocks you know well & are comfortable with. Your own bank, for example.

then as time goes by you could slowly add more individual stocks.


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## My Own Advisor (Sep 24, 2012)

I'm with you HP.

I used to see value in a dividend ETF, but no longer, so like REIT ETFs, I unbundle the holdings of the XDVs and the ZDVs of the world. I recall P/E ratios for most CDN banks are around 12 so still a good entry point for most of them.


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## humble_pie (Jun 7, 2009)

i think for investors with interest in holding individual common stocks but who are starting out with smaller accounts, an etf combo with one or 2 dividend paying stocks means a portfolio with good training wheels. When the investor & the account have grown bigger, the wheels come off.

same could go for growth stocks, the stock or stocks chosen don't have to be limited to high dividend payors. XIU or similar plus a familiar, well-known story stock means another good bicycle with training wheels.


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## AltaRed (Jun 8, 2009)

I do not see the value in stock picking for accounts under $50k. It is just not effective to diversify enough across a minimum of 10 stocks. Even a young new investor should not be putting too many eggs into just a few things. There is no assurance of picking a few winners that will do as good as an ETF?


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## bettrave (Jan 10, 2013)

It's not dividends oriented, but for my unregistered portfolio I own HXT and HXS.


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## cainvest (May 1, 2013)

You can also look at XDV and CDZ, or maybe pick two and put $10k in each.


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## Johnny M (Aug 21, 2013)

Suggestions for a $100 000 non registered account for a low income (20000) individual?
Presently holding 6 Canadian etfs Inc FIE ZDV XTR CBO WXM CDZ.


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## humble_pie (Jun 7, 2009)

AltaRed said:


> I do not see the value in stock picking for accounts under $50k. It is just not effective to diversify enough across a minimum of 10 stocks. Even a young new investor should not be putting too many eggs into just a few things. There is no assurance of picking a few winners that will do as good as an ETF?




my view is that, for certain investors with smaller or startup accounts who have the interest plus the abillity to learn, a portfolio that is largely index funds or ETFs but includes a small holding of one or 2 conservative bue chip stocks can serve as a superb teaching modality. 

this is what i meant by training wheels.

accounts between $15k & $50k are in a kind of "flou" or fuzzy territory imho. Everything depends upon the interests & the motivation of the investor. I'm not concerned by a thoughtful new investor who has already done his basic studying - as the OP in this thread appears to have done - who would purchase a small interest in his own bank's stock, for example, as a learning resource; while placing the far greater part of his portfolio in ETFs or index funds.

here in cmf forum, we have numerous very young persons (and very delightful persons, i might add) whose accounts are still modest, somewhere around $30k or less. These same young persons are clearly responsible, hard-working & talented. I won't embarass them by naming them, but altaRed you should know who they are by now!

most of these young persons arrive, sooner or later, at the stage of including one or a few individual stocks. Some of their picks & some of their ideas have been amazing, beautiful. These new investors seem able to learn an enormous amount, very quickly.

i for one don't believe that a boring old ETF like XIU or XDV is ever going to teach these eager beavers as much.

please note that i'm talking about a ratio of 20-30% conservative common stock, 70-80% index e-funds or basic ETFs.

i agree that when the amount at stake is less than $15k, there is no sensible choice except 2 or 3 index e-funds or etfs. But $20k & north, i feel a talented & motivated young investor can be encouraged to stretch his wings just a little bit.


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## gibor365 (Apr 1, 2011)

AltaRed said:


> I do not see the value in stock picking for accounts under $50k. It is just not effective to diversify enough across a minimum of 10 stocks. Even a young new investor should not be putting too many eggs into just a few things. There is no assurance of picking a few winners that will do as good as an ETF?


Why not?! 10 stocks with 5K in each it's fine and can be pretty diversified. I'd agree if you are talking about portfolio on 10K.... Also you are talking $$$ "per account", I think more correct to talk about portfolio, from 6 accounts i have , $ range from 19K to 170K, but all 6 I consider like 1 big portfolio


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## Synergy (Mar 18, 2013)

humble_pie said:


> my view is that, for certain investors with smaller or startup accounts who have the interest plus the abillity to learn, a portfolio that is largely index funds or ETFs but includes a small holding of one or 2 conservative bue chip stocks can serve as a superb teaching modality.


I couldn't agree more. That's how I first started out - mostly index funds and just a few individual stocks. The individual holdings really helped to take my understand to another level. I prefer individual stocks for my non-registered account and reserve my RRSP for index funds & ETF's.


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## Ihatetaxes (May 5, 2010)

humble_pie said:


> i for one don't believe that a boring old ETF like XIU or XDV is ever going to teach these eager beavers as much.


I wish I had of been lead to boring old ETFs like XIU or XDV when I was a young eager beaver. I would have wasted fewer years learning the hard way that chasing better than overall market returns through individual stock picking doesn't work for me.

Disclaimer - currently own a very healthy amount of XIU and 6 other ETFs with no plan to ever go back to stock picking.


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## AltaRed (Jun 8, 2009)

Ihatetaxes said:


> Disclaimer - currently own a very healthy amount of XIU and 6 other ETFs with no plan to ever go back to stock picking.


Glad to hear you are confident with a couch potato portfolio. The way most investors should have their portfolios organized per Jack Bogle and many others.


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## james4beach (Nov 15, 2012)

I think the best Canadian dividend ETFs are XIU and ZCN.

They're broad market benchmarks, and they also pay significant dividends... nearly entirely eligible dividends.


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## My Own Advisor (Sep 24, 2012)

Since 2009, XIU is all eligible dividends:
http://ca.ishares.com/product_info/fund/distributions/XIU.htm

Not only that, great returns (almost 8%) at a low cost:
http://ca.ishares.com/product_info/fund/performance/XIU.htm


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## Pluto (Sep 12, 2013)

My two cents: I tilt towards HumbleP perspective. However, someone starting out will eventually find their own comfort zone. I think the OP could do just etfs, a combination, or just individual stocks w/o any serious negative consequences. I started out with $1000.00, buying odd lots of a single company. It isn't as risky as it sounds provided one has done their homework. Anyway, the op might be interested in pursuing the list of Canadian dividend stocks on,

http://www.dividendninja.com

And speaking of homework, I'm compelled to add a word about my hobby horse, namely, value. Certainly the big five banks would come up on a list of compelling dividend payers. But are they good value right now? Supposing, for instance, a particular bank was growing it's earnings at a 10% rate, and its p/e was 12, and its dividend yield was below 4. Is that good value? Using a PEG basis, 12/10 = 1.2, suggests a 20% over valuation. Of course, any self respecting dividend etf would likely have one or more banks in it. All the hints that have come to my attention indicate better value is in the future. I'm not saying don't buy, nor am I saying buy; I'm saying pay attention to value. 

Its amazing to me that if one is to buy a car or a house it isn't unusual to make an offer below asking price. But in the stock market, the same people might pay any price for a security with out even kicking the tires, or doing an inspection. 

So my best suggestion to the OP is, before you commit your 20,000, either to etfs, or individual stocks, kick the tires, go for a test drive, check for a leaky roof - ask, is what you are buying, even if a household name blue chip, being offered at a reasonable price? Just because a used Lexus is for sale, doesn't mean the sticker price is right.


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## james4beach (Nov 15, 2012)

My perspective is that focusing too much on dividends ends up skewing investment decisions in a way that is not necessarily going to generate better long-term total returns. There is no reason to think that "dividend stocks" (as this term is used loosely) will necessarily generate better long term returns. Nor are they safer or better insulated from market downturns.

That's why I like the benchmark XIU or ZCN as "the best dividend ETF". It still certainly pays dividends... quite a bit, and the best type of tax-wise dividends... but you're getting it in a super low MER benchmark. Instead of paying a higher MER for the privilege of dividends.

Go take a look for example at CDZ versus XIU yields *after MERs* (you must subtract MER from the trailing 12 month yield). Last I looked, CDZ does not offer any dividend advantage.

The longer I spend in markets, the more I'm convinced it's best to stick to the lowest MER benchmark ETFs, even if you want a "dividend ETF" (which they are, I'll point out again). Best of both worlds.


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## james4beach (Nov 15, 2012)

Sorry a correction. If you're looking at trailing 12 month yield, it's probably already after MER. But if you're looking at portfolio yield then you should subtract MER. Carefully read the details in the descriptions on their web sites


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## liquidfinance (Jan 28, 2011)

james4beach said:


> Sorry a correction. If you're looking at trailing 12 month yield, it's probably already after MER. But if you're looking at portfolio yield then you should subtract MER. Carefully read the details in the descriptions on their web sites


That depends on the website. I believe the yield on ishares is after MER but for BMO you need to subtract it as they show you the portfolio yield. Not really looked at the other providers.


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## eulogy (Oct 29, 2011)

bettrave said:


> It's not dividends oriented, but for my unregistered portfolio I own HXT and HXS.


Me too. Not interested in paying taxes on dividends. But I guess if you're looking for dividends I think the standard Canadian equities are pretty much in line with the dividend funds out there and a cheaper MER. I'd go with ZCN or XIU... something like that.


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## nathan79 (Feb 21, 2011)

eulogy said:


> Me too. Not interested in paying taxes on dividends. But I guess if you're looking for dividends I think the standard Canadian equities are pretty much in line with the dividend funds out there and a cheaper MER. I'd go with ZCN or XIU... something like that.


My tax rate for dividends is something like -6%... I'm not sure how many responses have taken that into account.

If I make $1000 in dividends, I actually get back $60 in taxes.


I do appreciate all of the responses though; they've definitely given me some ideas.


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## Eclectic12 (Oct 20, 2010)

nathan79 said:


> My tax rate for dividends is something like -6%... I'm not sure how many responses have taken that into account.
> 
> If I make $1000 in dividends, I actually get back $60 in taxes.


I suspect few to none .... though I don't recall it being clear that you were that low for income.

That said - just keep in mind the dividend gross-up (i.e. receive $1, report $1.38 or so in income) ... if you are paid 100% eligible dividends and don't keep it in mind, you may end up losing the refund faster than your dividend income would suggest.


Cheers


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## james4beach (Nov 15, 2012)

In case anyone stumbled into this old thread (as I did), here is an update of "major index" ETFs that I think are good for non-registered accounts. There are some interesting new additions in this space.

Stocks

XIU, XIC, ZCN - vanilla might be best, effectively all eligible dividends & cap gains
HXT - swap based TSX 60... a bit exotic, but indeed does total return
HXS - swap based S&P 500... exotic, total return

Bonds

ZDB - discount (low coupon) bonds, tax efficient (see article)
BXF - short term bonds, tax efficient (see article) though a tiny fund
HBB - swap based bond index, again it's exotic, but does a great job


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