Canadian (TSX) Dividend ETFs

Which Canadian Dividend ETF should I add to my portfolio?
Here are the three biggest Dividend ETFs in Canada.

Canadian Dividend ETF Name Symbol MER Yield
BMO Canadian Dividend ETF ZDV 0.35 % 5.20 %
iShares Dow Jones Canada Select Dividend Index Fund XDV 0.55 % 3.85 %
iShares S&P/TSX Canadian Dividend Aristocrats Index Fund CDZ 0.67 % 3.29 %



The BMO Canadian Dividend ETF (ZDV) looks pretty good, with a low cost MER of just 0.35%.

Let’s investigate further, by breaking down the holdings of these ETFs, by sector weighting.

Sector ZDV (MER 0.35%) XDV (MER 0.55%) CDZ (MER 0.67%)
Financials 33.1% 51.3% 24.1%
Energy 20.5% 15.2% 18.0%
Consumer Discretionary 16.5% 4.8% 20.9%
Utilities 15.7% 6.5% 10.6%
Industrials 2.9% 6.5% 10.5%
Telecommunication Services 6.6% 15.3% 5.5%
Other Sectors 4.3% 0.0% 10.5%


Looking at this table, the iShares Dow Jones Canada Select Dividend Index Fund (XDV) looks a bit too heavy in both Financials and Telecommunications (versus a world sector breakdown of 24 % and 5 %, respectively).

The BMO Canadian Dividend ETF (ZDV) appears to be more in line with the true weighting of the overall Canadian market.

Although, the weighting looks ok, the MER price of 0.67%, rules out the iShares S&P/TSX Canadian Dividend Aristocrats Index Fund (CDZ)

Conclusion

In my opinion, the best Canadian Dividend ETF is the BMO Canadian Dividend ETF (ZDV)

Individual Stock Holdings – Comparison

In this final table, I have further broken down the sector weightings down to their individual company holdings. It’s interesting to see which companies have been included/excluded in each ETF.

Are Canadian TMX Options suitable for trading?

Thus far, I have only traded options on the US markets.

I was recently wondering, if there were suitable option candidates on our Canadian TMX exchange. By suitable, I refer to the option of a security having enough volume to keep the bid-ask spread reasonable.

Earlier this year, I grabbed a snapshot of the TMX option action, to analyze the possibilities.

Suitability criteria

I decided that I would only be interested in a security, if it traded over 500 contracts in a day. By my definition, this demonstrates a reasonable level of liquidity. Hence, I should be able to find a strike price that I can trade on a particular day.

In total, there are around 240 securities on the TMX that offer options.
Of those, only 38 securities traded over 500 contracts on that day.

Better US options

Of the 38 securities, I discovered that 10 of those securities, actually provided more liquidity/volume, if you went to the US markets instead. Therefore, if holding US currency in your portfolio isn’t an issue for you, go to the US market instead.

Here’s a list of those 10, and their interlisted US ticker symbols.

Possible Canadian Option candidates

Finally, here are the remaining 28 securities, that in my opinion, are possible option candidates for trading on our Canadian TMX exchange.

Conclusion

For each candidate above, on the day of the trade, you’d need to drill down to a specific strike price to see if the volume and bid-ask spreads warrant a possible trading position. Good hunting.

A side note on ETF options

In the above analysis, I’ve only discussed individual companies. As far as ETFs are concerned, XIU is the only product, with the necessary volume, to be a candidate for options trading. In my opinion, other Canadian ETFs, just don’t have enough volume to warrant a possible option trade.

The above analysis was originally posted by myself in the Options thread of the Canadian Money Forum

Options – The Avrex Money Strategy

The majority of my portfolio uses a passive Index / Couch Potato based methodology.

But, in about 20% of my portfolio, I utilize Options.

I execute this active strategy in two ways, to enhance my risk/reward.

1. In my registered account (TFSA/RRSP),
I buy options as a Stock Replacement strategy. In this manner, I can diversify among more securities than if I were to purchase the underlying stocks directly.

2. In my non-registered account,
I sell options with the goal of obtaining option premium income that is taxed favourably as capital gains.

In future posts, I’ll detail these strategies further.

Vanguard Canada ETFs

Vanguard Investments Canada Inc. plans to expand its family of low-cost, high-quality exchange-traded funds to 11 with the addition of five new ETFs.

The most intriguing new ETF is the ‘Vanguard FTSE Canadian Capped REIT Index ETF’.
With a management fee of 0.35%, it’s cheaper than the current REIT ETFs that many of us have in our portfolios:
BMO Equal Weight REITs Index ETF (ZRE) (MER 0.55%)
iShares S&P/TSX Capped REIT Index Fund (XRE) (MER 0.60%)

Here’s the full lineup of 11 Vanguard ETFs.
I have highlighted in bold, the ETFs that I would consider placing in my investment portfolio.

Vanguard Canada ETFs Symbol MER
Equity
Vanguard MSCI Canada Index ETF VCE 0.09%
Vanguard FTSE Canadian Capped REIT Index ETF VRE 0.35%
Vanguard FTSE Canadian High Dividend Yield Index ETF VDY 0.30%
Vanguard MSCI U.S. Broad Market Index ETF (CAD-hedged) VUS 0.15%
Vanguard S&P 500 Index ETF VFV 0.15%
Vanguard S&P 500 Index ETF(CAD-hedged) VSP 0.15%
Vanguard MSCI EAFE Index ETF (CAD-hedged) VEF 0.37%
Vanguard MSCI Emerging Markets Index ETF VEE 0.49%
Bond
Vanguard Canadian Short-Term Corporate Bond Index ETF VSC 0.15%
Vanguard Canadian Aggregate Bond Index ETF VAB 0.20%
Vanguard Canadian Short-Term Bond Index ETF VSB 0.15%