ETFs and dividend stocks built to last for your portfolio

It’s easy to see the love affair with Exchange Traded Funds (ETFs).  They can be a super cheap, low-cost way to passively invest in the market.  You can also get what is considered to be “the only free lunch” that comes with investing – diversification.  You can own thousands of stocks from around the world with one ETF product.

It’s also see the affinity to dividend paying stocks.  While a high and a consistent total return is always a good goal when it comes to your portfolio, dividend paying stocks can offer tangible cash flow to investors and some capital appreciation as well.  By owning dozens of established companies from different sectors that have a long history of paying consistent dividends, you can build a generous passive income machine.  This income machine can also grow from dividend increases.

Are there ETFs and/or stocks that are built to last for your long-term portfolio?

I believe there are, and the list is here.

VTI in your RRSP*

The Vanguard Total Stock Market Exchange Traded Fund (VTI) invests in more than 3,000 U.S. stocks.  While you cannot control what the U.S. stock market will do you can control your money management fees, and this ETF has industry-leading rock bottom costs.  10-year returns on this ETF at the time of this article are close to 8%.  I consider this ETF an excellent product for your U.S.-dollar RRSP.

VXUS in your RRSP*

Own the world outside the U.S. economy with the Vanguard Total International Stock Exchange Traded Fund (VXUS).  This product gives investors broad exposure to major stock markets around the world, ex-United States, with holdings from ~40%+ Europe, ~20% Emerging Markets, and ~30% Pacific Markets.  You’ll own more than 5,000 stocks outside the U.S. with this product.

Not a fan of U.S.-listed ETFs to invest outside Canada?  Consider these funds:

Vanguard All-World ex-Canada Index ETF (VXC)

iShares Core All Country World ex-Canada Index ETF (XAW)

*A reminder U.S.-listed ETFs (and stocks) held inside an RRSP escape withholding taxes of 15%. U.S.-listed ETFs like these trade in USD $$ so having a U.S. dollar RRSP minimizes foreign exchange charges and you can take advantage of currency fluctuations.

For Canadian-listed ETFs, to cover the Canadian market, I believe the following products should top your considerations for long-term growth:

  • XIC or VCN or ZCN to name a few.

XIU in your RRSP or TFSA or taxable account

Another consideration for your portfolio is the iShares S&P/TSX 60 Index Fund (XIU).  This Index is comprised of 60 of the largest (by market capitalization) and most liquid securities listed on the TSX.  XIU is also very tax-friendly in a taxable account.

Are there individual stocks built to last?  In my opinion, yes.

Any big five Canadian bank

Canadian bank stocks have offered yield and capital appreciation for investors for generations. I suspect the future should be much of the same although there are never any guarantees with any investment.

  • Bank of Montreal (BMO) – paid dividends since 1829.
  • Bank of Nova Scotia (BNS) – paid dividends since 1832.
  • TD (TD) – paid dividends since 1857.
  • CIBC (CM) – paid dividends since 1868.
  • Royal Bank (RY) – paid dividends since 1870.

These other stocks are considerations for your portfolio given their established dividend histories AND the fact they tend to raise dividends often, in some cases every year.

Canadian stocks

  • Bell Canada Enterprises (BCE) – paid dividends since 1880 (formal records date back to 1949).
  • Laurentian Bank (LB) – paid dividends since 1886.
  • Imperial Oil (IMO) – paid dividends since 1947.
  • Canadian Utilities (CU) – paid dividends since 1950.
  • Enbridge (ENB) – paid dividends since 1953.
  • Fortis (FTS) – paid dividends since 1972.
  • National Bank (NA) – paid dividends since 1980.
  • TransCanada Corporation (TRP) – paid dividends “since the early 90s” as per their Investor Relations team.
  • Emera (EMA) – paid dividends since 1992.
  • Suncor (SU) – paid dividends since 1992.
  • RioCan REIT (REI.UN) – paid dividends since 1994.
  • Canadian National Railway (CNR) – paid dividends since 1996.
  • Inter Pipeline (IPL) – paid dividends since 1997.
  • Telus (T) – paid dividends since 1999.

U.S. stocks

I would also consider some of these U.S. dividend aristocrats, companies that have raised their dividends, every year, for at least 25 consecutive years.

  • 3M Company(MMM)
  • AFLAC Inc.(AFL)
  • Abbott Laboratories (ABT)
  • AT&T (T)
  • Becton, Dickinson & Co (BDX)
  • Chubb Corp (CB)
  • Chevron Corp. – (CVX)
  • Clorox Co (CLX)
  • Coca-Cola Co (KO)
  • Colgate-Palmolive (CL)
  • Consolidated Edison Inc (ED)
  • Emerson Electric Co (EMR)
  • Exxon Mobil Corp (XOM)
  • Johnson & Johnson (JNJ)
  • Kimberly-Clark (KMB)
  • Lowe’s Cos Inc (LOW)
  • Medtronic (MDT)
  • PepsiCo Inc (PEP)
  • Procter & Gamble (PG)
  • Walmart (WMT)

(Disclosure:  I own some of these funds and stocks listed above.)

There is no magic bullet when it comes to investing.  Owning ETFs and indexing your portfolio doesn’t guarantee investing success.  Investing in individual dividend paying stocks can be risky.  Either way you need to have a plan in place.  All investors should be responsible for their own investing decisions.  However sometimes past performance can be a decent predictor of future results.  Meaning, I think if investors can invest regularly, continue to keep their money management costs low, diversify, avoid tinkering with their investments, and hold more equities than bonds, chances are they will be rewarded many, many years from now.

Thanks for reading ETFs and dividend stocks built to last.

What investments do you consider, built to last for a portfolio?  Any ETFs or dividend paying stocks I missed?

My name is Mark Seed and I'm the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, we're inching closer to our ultimate goal - owning a 7-figure investment portfolio for semi-retirement. We're almost there! Subscribe and join the journey. Learn how I'm getting there and how you can get there too!

29 Responses to "ETFs and dividend stocks built to last for your portfolio"

  1. Those are some great picks..although I think if you own a VXC (and probably the same for XAW – didnt know there was a iShares product out to compete with VXC) – you wont need a VXUS, and might result in quite a bit of overlap. For my wife’s portfolio, we ended up with ZCN and VXC for equity exposure.

    Really like the mix of individual Canadian and US stocks as well.

    R2R

    Reply
  2. Investing in quality companies that have paid dividends for a very long time are great stocks to hold for the long term. These companies raise there dividends every year almost. The banks dividend raise their dividends during the financial crisis but kept the dividends the same.

    As far as ETFs go, they are a great vehicle for any one to get started in investing when they do not have a lot of money to start with. As if an individual buys commissions ETFs, providing the ETF price doesn’t move very much, will get a higher yield that what a savings account gets today.

    Reply
    1. As far as ETFs go, I think the ones I mentioned in the article are excellent starting points for most investors. The key is an investors savings rate. The higher, the longer, the better. Thanks for reading!

      Reply
    1. Good question and I have been asked before but I don’t provide this information online since I already share many details about myself. If you want some more insight I can always drop you an email.

      Thanks for understanding!
      Mark

      Reply
  3. We’re slowly getting into the index ETF world as well. Vanguard Canada has definitely upped their games when it comes to amount of different index ETF’s available for us Canadians.

    Reply
  4. I prefer dividends over ETFs, but this is a great list all the same! 😛 Especially agree with most of your Canadian Stocks. Good choices. I think you went with classic choices for US, but can’t go wrong with them either!

    Cheers!

    Mike

    Reply
  5. Mark,

    I always wonder how to balance between Dividend stocks and index funds. My RRSP around is TD eseries (canadian, US, International) equity and 20% e series bond. But, MY TFSA is not very big probably few thousand worth dividend stock from top list of few canadian companies. My question is what would you advise, are Index funds are good enough..Your website is loaded with information, whats your idea of hybrid investing, I always wonder how you distribute between dividend stocks and index funds. I just started making portfolio and would love to peek inside yours to see how you distribute it.

    Reply
    1. Thanks for reading Aki. Nothing wrong with TD e-series products. Low fees and good diversification.

      I only keep CDN dividend paying stocks inside my non-registered account and within our TFSAs.
      https://www.myownadvisor.ca/dividends/

      As for your question I cannot provide any advice on this site for many reasons but the quick answer is yes “index funds are good enough”.
      If you wish to take on more risk for potentially more reward you can invest in dividend paying stocks but the challenge will always be matching or beating the index with this strategy.

      My idea of hybrid investing the best of both worlds: dividend investing and indexing. I hold about 40 stocks for passive income/cash flow for (hopefully) early retirement in another 10 years and I index invest everything else for safety. I don’t hold bonds because I have a pension from work and because I’m very lucky to have it I consider that a “big bond”.

      Based on that post, there are a number of holdings in that article I own and probably always will unless the dividend gets eliminated.

      Reply
      1. I also think, its easy to invest in TD eseries or other ETF. As there is no fee and you can pretty much put 400$ every month. But, for buying something like TRP or individual stocks, you need to have atleast 1000$ aside..So instead of investing monthly it become once in 2 month or sometime more which requires discipline. Also, I cannot ignore the fact that people always like to look at 52 week bottom for buying which delays the investment.

        Reply
        1. I think you’re right Aki, probably good to wait until about $1000 to invest as to keep transaction costs low/close to 1%. I admit to trying to wait to the 52-week lows to make a purchase. I don’t always follow this advice but I try.

          Reply
  6. Really a super solid list of Canadian and U.S. stocks mentioned. Any of these names can be a basis for a long term dividend growth portfolio. Of course, I’m still a big fan of the large Canadian banks with TD, BNS and RY in my ROTH. Happy to own many of the American stocks mentioned as well. Long term dividend investing doesn’t have to be difficult at all. Just stick to quality, long term dividend payers/raisers, diversify and be patient. Thanks for sharing.

    Reply
    1. “Just stick to quality, long term dividend payers/raisers, diversify and be patient.” Agreed. Hopefully you’ll see a reflection of that in my latest dividend income update coming out later today. Thanks for the comment.

      Reply
  7. What is the problem with FTN-15% and DFN-10%, I have never seen these high dividends stocks recommended nor commented. They are my most profitable FERR stocks!

    Reply
    1. I personally wouldn’t invest in them (FTN or DFN) since those yields will come down eventually, no? I say this because I don’t see how 14% yield is sustainable. Drop me a line ARGI and let me know 🙂

      Reply
      1. The yield of DFN, FTN, etc. is sustainable as long as the total return of the stocks held maintains the average. It is a leveraged fund, so it only needs to earn an average of 10% in growth and dividends (total return) to pay the 14% yield. It is now four years since your reply to ARGI and DFN currently has a 13.35% yield and recently declared it 186th consecutive monthly dividend. All it is doing is monetizing the total return of the stocks held. If the average dividend yield of the underlying stocks is 4% it only needs 6% in growth (+ a bit for fees) which is quite feasible. The current YTD of XIU is 16%. If that were leveraged 50% the return on capital would be 32%. After the cost of leverage at 5.25% that leaves a net return of 26.75%, over double that of DFN. The difference is in the down years when XIU is negative, DFN still pays as it builds up a surplus in the good years. It works somewhat like an annuity, paying the same every year regardless of what the market does.

        Reply
        1. Hard to believe where the time goes Brian…

          DFN has paid a ridiculous yield for some time now…I honestly can’t believe there hasn’t been a haircut with 13% yield.

          Do you hold this is in a taxable account or registered account?

          Reply
          1. I agree, the yield looks ridiculous when compared to the 4% yield of the stocks it holds. The yield of DFN though, is not the same as yield from dividend stocks. The yield from dividend stocks comes from earnings which comes from business operations. Leveraged capital gains and dividends are repackaged as yield for holders of DFN.

            You mentioned wanting to buy CNR in a recent comment. CNR has had annual capital gains exceeding 10% the last five years and the dividend yield is currently 1.8% which makes a total return of close to 12%. Leveraged funds like DFN only need a total return of 9% to pay a yield of 12% or 13% yield due to the use of leverage. If 4% of that 9% that is needed comes from dividends (Canadian banks pay about 4%), only 5% is required from capital gains, which most blue chip stocks can deliver annually.

            Comparing DFN and CNR at dividendchannel you are better off holding CNR. While the yield of DFN is considerably higher, there is little to no price growth, so CNR wins in the long run, even with a yield of 1.8%.

            While the yield of DFN seems high, the return from CNR is actually higher, but it is a mixture of capital gains and dividends while the return from DFN is only dividends as the share price remains about the same.

            Investors in DFN will have a lower return, but in exchange they get a stable monthly income without having to sell shares to get it. As far as taxation goes, the yield from DFN is taxed, at least in 2018, as a mixture of eligible dividends (85%) and capital gains 15%.

            Reply
            1. As yes, so you’re basically swapping capital gains + getting the dividends = yield. Even then, that seems crazy high.

              I would be worried about that personally! I’m very conservative as an investor though – probably why I own 30 CDN + some U.S. stocks + U.S. ETFs on top of that. What happens when capital gains fall? For a prolonged period?

              I like CNR. I wish I had enough to DRIP it. I think that would mean I would need some 300 shares or about $36k invested.

              Do you own a bunch of DFN?

              Cheers,
              Mark

              Reply
    1. I have considered that one Paul. Like most dividend ETFs however, if you own the top-10 or top-15 stocks that largely acts as a proxy for the fund and you don’t have to worry about the fund fees while getting similar returns. The yield on this is also less than VTI, which means you’re getting less diversification with VGG and less yield.

      That said I won’t rule it out eventually. Do you own VGG? Thanks for your question.

      Reply
  8. Yes, I do own VGG as well as CUD which is similar but hedged against US dollar. A combination I really like is VGG and VEF (FTSE DEv ex NA – hedged) along with corporate strip bonds. What do you think ?

    P.S. I am in the process of revamping my RRSP portfolio – could you possibly share highlights of what you own in your RRSP ?

    Thanks!

    Reply
    1. I think for folks that do not want to invest in dividend paying stocks individually, VGG on the U.S. side and XIU on the CDN side, as two examples, are good ETFs to own. Again, not a recommendation, just a comment from me.

      Here’s a post on how I manage my DIY portfolio Paul. This is not a recommendation, just some insight. My RRSP is becoming more indexed with a U.S.-listed ETF like VTI over time. That’s my plan anyhow.
      https://www.myownadvisor.ca/how-i-manage-my-diy-stock-portfolio/

      Reply
    1. VFV is a great product. I believe it trades in Canadian dollars and VFV is the Canadian version of U.S. VOO. So, using VFV in a non-registered account withholding taxes will apply (15%) but they are recoverable when investors file their tax returns. In an RRSP or TFSA withholding taxes will apply with VFV – which will increase the cost of owning this product. Thanks for the comment.

      Reply

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