Think Dividends has a nice comparison of two popular exchange-traded funds that focus on dividend-paying stocks. As the names suggest, both the iShares Dow Jones Canadian dividend ETF and the Claymore S&P/TSX Canadian dividend ETF have similar goals: They contain a basket of stocks that are particularly attractive for their dividend prowess.
But as the blogger points out, the similarities stop there. The two ETFs - which look like mutual funds but trade on exchanges, like stocks - track different indexes, use different methodologies for selecting stocks and have different yields.
The iShares tracks the Dow Jones Canadian dividend index, and has a yield of 3.8 per cent. The Claymore fund tracks the Standard & Poor's Canadian dividend aristocrats index, which consists of stocks that have increased their dividends in each of the past five years. It has a yield of 4.4 per cent. You can get a breakdown of the top yielding stocks and trusts in the index in the latest Number Cruncher: Dividend aristocrats strut their stuff.
The sector exposure is also vastly different. The iShares fund has a 61 per cent exposure to financials and just a 7 per cent exposure to energy stocks. On the other hand, the Claymore fund has a 35 per cent exposure to financials and 22 per cent exposure to energy.
What's also interesting about the Claymore fund is that its methodology is about to kick out the last two remaining Big Banks when the underlying index is rebalanced in December.
With the financial crisis, regular dividend increases among the banks isn't what it used to be. Toronto-Dominion Bank and Bank of Nova Scotia last raised their respective dividends in July, 2008 - a two-year dry spell that, like their peers in the banking sector, fails to make them dividend aristocrats.
A dividend ETF without any banks sounds a bit strange, but methodology is very methodological.
David Berman