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.
- 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.
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?