Are you a new investor seeking capital growth through a portfolio that tracks the performance of reliable, dividend-paying, Canadian stocks?
An ETF like iShares XDV might be suitable for you to consider.
In this iShares XDV ETF review, I will discuss what you need to know about the all-equity ETF to determine whether it is an ideal way to park your capital and grow your wealth.
All-Equity Exchange-Traded Fund
BlackRock iShares XDV is an Exchange-Traded Fund (ETF) that provides you with exposure to a basket of Canadian stocks that provide you with regular, monthly dividend income.
Pros of iShares XDV
- Provides you with diversified exposure to 30 of the highest-yielding Canadian companies
- Allows you to earn regular, monthly dividend income from Canadian stocks
- Is a professionally managed portfolio of high-yielding dividend stocks
- Rebalances automatically to align with your investment goals
Cons of iShares XDV
- Can become volatile if emerging equity markets become volatile
- Offers zero exposure to any fixed-income assets
BlackRock iShares Canadian Select Dividend Index ETF is an exchange-traded fund designed to replicate the performance of the top 30 stocks in the Dow Jones Canada Total Market Index, net of expenses. It seeks to provide its investors with regular income through the portfolio of high-yield, dividend-paying, Canadian companies trading on the Toronto Stock Exchange (TSX).
As an all-equity ETF that allocates almost all of its funds to a basket of equity securities, iShares XDV does not invest in any fixed-income securities like bonds or Government Income Certificates (GICs).
However, it was launched in 2005 by BlackRock Canada and, therefore, has a significant performance history that you can track to determine its potential performance moving forward.
Professionally managed by BlackRock, a multinational investment management corporation, iShares XDV is a medium-risk investment opportunity that can cater to investors seeking regular monthly passive income through dividends.
Several other all-equity ETFs trade on the TSX in Canada. You can check them out in my list of the best Canadian ETFs here.
iShares XDV is an all-equity ETF that diversifies its asset allocation across several Canadian economic sectors to ensure reliable monthly dividend income for its investors.
It is an all-equity ETF that invests all of its funds in stocks that do not have exposure to bonds, GICs, or other fixed-income securities. Hence, it can reflect the performance of the top, dividend-paying equity securities in Canada.
Most of its funds are allocated to Canadian companies in the financial sector due to their long history of providing investors with reliable dividend income.
This section of my reviews typically discusses the asset allocation split between fixed-income and equity securities for the ETF.
iShares XDV is an all-equity ETF. This means that it does not allocate any funds to bonds or other fixed-income securities.
As of March 5, 2021, iShares XDV ETF has allocated 99.76% of its funds to equity securities. It holds the remaining assets in cash and derivatives.
This section of my iShares XDV ETF review will take a closer look at the ETF’s asset allocation.
iShares XDV is an all-equity ETF, and this means that its entire asset allocation is towards the top 30, dividend-paying stocks diversified across different sectors in the Canadian economy. Its most significant exposure is towards Canadian banks.
As of March 4, 2021, the Canadian Imperial Bank of Commerce is its most significant holding at an 8.99% weighting. It is followed closely by Canadian Tire Ltd. at a 7.37% weighting. The Bank of Montreal is its third most significant holding, accounting for 7.31% of its fund allocation.
This section of my iShares XDV ETF review will take a closer look at the ETF’s sector weighting.
The ETF provides investors with exposure only to equity securities trading in different sectors of the Canadian economy. At the same time, however, it heavily favours the Canadian financial industry due to its reliable dividend income.
As of March 4, 2021, its most significant asset allocation is towards the Financials sector at 62.60%. Its second most significant sector exposure is towards Utilities at 9.21%. The Communications sector comes in third at a 9.14% weighting. On the other hand, its lowest sector weighting is towards Materials at a 1.90% weighting.
iShares XDV ETF has a high Management Expense Ratio (MER) of 0.55%, making it costlier than some of the other ETFs offered by BlackRock iShares that you can consider adding to your investment portfolio.
However, its MER is significantly lower than any mutual fund product that provides investors with similar features and benefits.
The average mutual fund fees can be 2% or higher. So, ETFs offering a lower MER than mutual funds products—like iShares XDV—is also a crucial reason why many Canadians prefer to invest in ETFs rather than mutual funds in recent years.
iShares XDV ETF allocates its funds only to equity securities diversified across the Canadian economy based on the dividend income they provide.
Considering the performance of the top dividend stocks in Canada since the fund’s inception, it is no surprise that the ETF’s performance has recently been excellent, except during the market crash in 2008-2009 and 2020.
The growth of a hypothetical $10,000 since the fund’s inception in 2005 shows that the ETF’s performance and returns reflect the performance of the dividend-paying equity securities in Canada.
The growth of the hypothetical $10,000 has been phenomenal over the years, except for the decline between 2008 and 2009 and the drastic pullback during February and March 2020.
Both declines in the fund’s performance and returns occurred during devastating market crashes that affected the entire global economy and all Canadian economic sectors.
However, iShares XDV ETF has made a rapid recovery after the latest crash and is at its best levels so far.
The fund’s entire focus on equity securities adds a level of risk to investor capital during periods of difficulties for the Canadian economy.
The fund’s focus on a few high-quality equity securities known for providing reliable dividend income makes it a more attractive asset to consider.
The companies held by the ETF provide investors with dividend income regardless of the economic environment because most of them enjoy wide economic moats that can ride out the wave of difficulties caused by bear markets.
However, with no exposure to bonds or GICs, nothing is offsetting the Canadian equity security market’s volatility.
iShares XDV ETF provides its investors with returns through dividends with a distribution yield of 4.15% as of March 4, 2021.
Its trailing, 12-month dividend yield as of March 4, 2021, is 4.44%, and it pays out dividends to its unitholders each month. Its last distribution per share as of February 12, 2021, was $0.09.
iShares XIU is an all-equity ETF offered by BlackRock Canada that you can consider adding to your portfolio. It diversifies its asset allocation across several sectors of the Canadian economy like iShares XDV ETF.
However, unlike iShares XDV ETF, iShares XIU ETF invests its funds in the top 60 publicly traded Canadian companies based on the companies’ market capitalization. On the other hand, iShares XDV ETF focuses its asset allocation towards companies sporting the highest dividend yields.
iShares XIU is also a low-cost ETF that you can consider due to its 0.18% MER, which is significantly different from iShares XDV ETF’s 0.55%.
iShares XIU ETF could be a viable alternative to iShares XDV ETF if you are interested in tracking the top 60 Canadian companies’ performance for long-term capital growth rather than regular passive income through dividends.
Read my full iShares XIU ETF review here to find out more.
iShares XIC is another all-equity ETF offered by BlackRock Canada that tracks equity securities’ performance in Canada.
iShares XIC ETF is one of the oldest ETFs in existence, and it set the pace for other ETFs to follow. It allocates its funds to Canadian companies based on their market capitalization. It also provides you with a much broader exposure to the Canadian equity security market than iShares XDV ETF.
iShares XIC ETF may provide you with a lower risk to your portfolio than iShares XDV ETF because it invests in 219 companies compared to iShares XDV ETF’s 30 companies.
iShares XIC ETF is also an incredibly low-cost investment to consider for your portfolio due to its 0.06% MER, which is substantially lower than the 0.55% MER for iShares XDV ETF.
iShares XIC ETF could be a viable alternative to iShares XDV ETF if you want low-cost exposure to the entire Canadian stock market for long-term capital growth instead of dividend income.
Read my full iShares XIC ETF review here to find out more.
All-equity ETFs are generally a tricky investment for anyone to consider. I typically would steer clear of all-equity ETFs because the assets cannot provide stability in a volatile market due to a lack of exposure to fixed-income securities.
However, iShares XDV could still be a better fund to consider than many other all-equity ETFs because it focuses its entire allocation towards equity securities that sport high dividend yields.
While it is still prone to the effects of volatile market conditions, it has holdings reputed for providing investors with regular dividend income due to its wide economic moats.
The lack of geographic diversification means that investing in iShares XDV ETF is the same as betting on the top 30 dividend-paying Canadian companies’ performance. As the market crashes in 2008 and 2020 showed, if equity securities in Canada are not performing well, the ETF can see significant challenges in its ability to provide you with returns.
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Suppose you are an investor seeking low-cost exposure to the top, dividend-paying, Canadian companies for regular monthly passive income. In that case, iShares XDV is an all-equity ETF that can be an excellent investment.
I have my reservations about its lack of exposure to fixed-income securities and lower number of holdings.
However, its focus on the highest dividend yields sporting equity securities makes it an attractive investment to consider for passive income-seeking investors. I give iShares XDV ETF a Wealth Awesome thumbs up.