# BMO Canadian Dividend ETF (ZDV)



## joncnca (Jul 12, 2009)

any thoughts on ZDV?

haven't seen as much discussion about it compared with CDZ and XDV.


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## doctrine (Sep 30, 2011)

I personally don't like a lot of the stocks in ZDV. I just went through the current holdings and at first glance, I don't like about 20 of the 51 positions. For example, Extendicare was their 2nd largest holding and they just cut their dividend by 40% today (and dropped in value by 28% very quickly). Although they claim to base their methodology out of payout ratio, it's certainly not payout ratio of net earnings or a lot of these companies would be disqualified. 

It remains to be seen if the dividend growers can outperform the dividend cutters (they also own Atlantic Power which cut its dividend by some 40% a few months ago) and the distribution, which is $0.07 quarterly and yields 5.6%, will increase or decrease over time.

For what it's worth, I think XDV is the best of the three big dividend ETFs. I only disapprove of 10 of the 30 companies in that ETF. But it is overweight in financials so you wouldn't want too much of it.


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## james4beach (Nov 15, 2012)

joncnca said:


> any thoughts on ZDV?
> 
> haven't seen as much discussion about it compared with CDZ and XDV.


I'm intrigued by ZDV as it has a low MER and good (capped) sector exposure. Also it appears to have low turnover, as it holds the same stocks as 6 months ago.

But I agree with doctrine; I don't like many of their holdings. Too many unsustainable high-payout companies, in my opinion, and I feel like ZDV is almost guaranteed to drop in the coming years as more dividends get cut (and it's dividend yield will also probably drop, a double whammy)

I think the problem stems from its methodology though I didn't realize this at first. It chooses the highest dividend yielders, so they tend to (by nature) be riskier stocks. Also, the fund filters for payout sustainability over the last 5 years. Because it's mostly looking at the post-crash years, pretty much all companies look "sustainable" and their screening is probably doing very little. If it went back 7 years, then you'd really see what the dividend sustainability was over the rough patch.

Overall, not a horrible fund, but I'd like to wait longer before I buy it.


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## joncnca (Jul 12, 2009)

thanks guys, those are good points. i have some xdv but wanted to reorganize..i was going to forgo a dividend etf altogether to pair down and just have 4 funds across the world including bonds. hoping to simplify, and yes, xdv is pretty heavy on financials


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## james4beach (Nov 15, 2012)

On the issue of ZDV turnover. You can find the figures in the "Annual Management Report of Fund Performance". A few useful figures in there actually for 2012, the fund's first full year

ZDV:
* Portfolio turnover rate: 52.88%
* MER: 0.39% (note that BMO posts lower 'max annual fee' 0.35% on their web site, but MER is always higher)

XDV in comparison:
* Portfolio turnover rate 25.04%
* MER 0.55%


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## audio (Apr 19, 2013)

Don't forget the new VDY.


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## james4beach (Nov 15, 2012)

There's a thread going on here that may be relevant to ZDV.

There are two different articles linked here on page 5 that seem to show that you can get superior returns from dividends if (a) the stocks have high dividend yield and (b) low payout ratio.

This is somewhat new to me. But if it's true, then ZDV may really have the right idea. Their methodology is to weight the holdings by yield so they really do get some of the highest yielders in Canada. They also supposedly screen for payout ratio but I'm not totally convinced that part of their methodology is working. This all looks to me like the "right way" to find dividend stocks to invest in


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## My Own Advisor (Sep 24, 2012)

Nothing wrong with high yield and low payout ratio. That's a tough double to pull off though.


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## james4beach (Nov 15, 2012)

My Own Advisor said:


> Nothing wrong with high yield and low payout ratio. That's a tough double to pull off though.


Very tough to do it, and currently ZDV isn't pulling it off. I spot checked their top 5 holdings and found payout ratios between 70% to 100%. I did this hastily so want to re-examine -- for example maybe the bulk of the fund has lower payout stocks, I don't know.

But if ZDV's top few stocks are indicative of the rest of the fund, their payout ratios are too high and that's not good for performance. So I'm watching ZDV to see if their methodology successfully kicks these kinds of stocks out of the fund, in another year.

They have cooked up a screening methodology that generally sounds good. But when I see those high payout ratios I think, their screening method is probably not strict enough on payout ratio. I'm not yet convinced, certainly not buying any time soon.


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## Belguy (May 24, 2010)

Any thoughts on a 50/50 split between XDV and CDZ as the sole Canadian Equity holdings in a registered account or are there better ETF choices?:confused2:


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## Spudd (Oct 11, 2011)

I like ZLB (BMO low volatility). I have read that low volatility strategies historically beat the index, and I prefer to have less volatility in my registered account.


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## My Own Advisor (Sep 24, 2012)

This was my take a short while back:

http://www.myownadvisor.ca/2013/04/top-canadian-dividend-etfs-for-your-portfolio/

Not a big fan of CDZ (high MER) or VDY (concentrated in 10% of holdings). Might as well own some of those stocks directly.

Otherwise, ZDV and XDV or a little bit of both.


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## doctrine (Sep 30, 2011)

> They also supposedly screen for payout ratio


Their criteria are unclear, and there are stocks with 100%+ payout ratios in the fund.


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## Belguy (May 24, 2010)

A tough day for dividend stocks in general and financial stocks in particular.


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## My Own Advisor (Sep 24, 2012)

Belguy, 

The more they tank, the more we can buy 

@doctrine,

While ETFs offer transparency, I'm not always convinced they follow their investing rules.


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## james4beach (Nov 15, 2012)

Belguy said:


> Any thoughts on a 50/50 split between XDV and CDZ as the sole Canadian Equity holdings in a registered account or are there better ETF choices?:confused2:


I don't think XDV+CDZ together is a good idea because the danger is that you're selecting an average, unremarkable group of dividend stocks, which research shows is likely going to underperform the index. So you're paying all that extra MER with no compelling reason to believe they will even outperform XIU/ZCN. Your net MER would be 0.61%

As I've posted a few times, historically speaking there is no case for why either XDV or CDZ would outperform TSX long-term, especially after fees! Some dividend stocks outperform the index, others underperform.

Instead if you really insist on having dividend stocks, I think *the best recipe is: XIU/ZCN & one dividend ETF*

Which ETF, not sure. What looks best to me right now is ZCN & XDV as your two (net MER 0.37%). Definitely not CDZ... the MER is too high. Do you realize the yield on CDZ after MER is 3.18 - 0.66 = 2.52% yield. That's actually less than the broad market! ZCN is approx 2.65% (on a 12 month trailing basis)

Either way, if you're going with two ETFs for Canadian equity exposure, I think one of them has to be XIU or ZCN


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