If you have $50,000 in your pocket, you can spend hours picking out individual dividend stocks – or you can let a dividend-focused Exchange Traded Fund (ETF) do the heavy lifting. These funds automatically spread your money across dozens of proven income earners, saving you time and reducing risk on individual stocks. Most even pay you monthly.
With this strategy, you can cover virtually every dividend stock in Canada with just two ETFs: one focused on high dividend yields and another on consistent dividend growth. Here are my choices.
$25,000 in high dividend yields
The ETF you should own here is the iShares S&P/TSX Composite High Dividend Index ETF (TSX:XEI).
It contains 75 companies, chosen from the broader overview S&P/TSX composite index due to their above-average dividend yield, with a natural bias towards value stocks trading at lower valuations relative to their earnings or cash flow.
Even compared to the Canadian financial and energy-rich stock market, this ETF performs well in these sectors. This concentration is associated with more volatility, but also with strong income potential. The ETF delivers a twelve-month monthly distribution of 4.9%, making it a favorite among income-oriented investors.
It is also one of the cheapest options in its category, with a management expense ratio (MER) of 0.22%. On a $25,000 investment, that equates to about $55 per year in fees – a small price to pay for broad, steady exposure to Canada’s largest dividend payers.
$25,000 in dividend growth
The natural complement to XEI is the iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (TSX:CDZ).
This fund includes 89 large, well-established Canadian companies that have increased their regular cash dividends every year for at least five consecutive years. The return is not that high – about 3.5% – but that is not the main advantage.
These companies are the ones that grow their payouts steadily, building what’s called a dividend snowball, where reinvested and growing dividends increase your income over time. Like XEI, this ETF also pays monthly distributions.
Despite the slightly higher MER and lower yield, CDZ performed well. With dividends reinvested, the three-year annualized total return of 17% is higher than XEI’s 15.6%, demonstrating the benefit of focusing on steady dividend growth.
A dividend portfolio of €50,000 can be built with just two ETFs: one for yield (XEI) and one for growth (CDZ). You will earn monthly incomebroad diversification and long-term compounding – all without having to pick a single stock.
The silly takeaway
If I had $50,000 to invest for dividends, I wouldn’t overcomplicate it. A split between XEI and CDZ covers virtually all the major dividend stocks in Canada, combining high-yield income with long-term growth potential. You get the steady cash flow of pipelines, utilities and banks, plus the built-in discipline of companies that increase their payouts year after year.
The key is consistency. Reinvest the dividends when you don’t need the money yet, and you’ll see the snowball roll faster over time. Skip the temptation to hunt for flashy new dividend ETFs or guess which bank will increase its payout next quarter: These two ETFs already do the work for you.
#invest #Canadian #dividend #stocks