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| ETF | TSX Symbol | Management Fee1 |
| Vanguard Developed ex-North America Dividend Appreciation ETF | VIGG | 0.28% |
| Vanguard U.S. High Dividend Yield Index ETF (CAD-Hedged) | VUDH | 0.28% |
On Monday (June 1), Vanguard Investments Canada Inc. announced two new income-focused Dividend ETFs. The same day, they started trading on the Toronto Stock Exchange (TSX): Vanguard Developed ex-North America Dividend Appreciation Index ETF (TSX: VIGG) and Vanguard U.S. High Dividend Yield Index ETF (CAD-Hedged) (TSX: VUDH).
The two new funds are focused on high-dividend yield and dividend growth respectively, said Sal D’Angelo, Head of Product and Marketing, Vanguard Canada, in a press release. VIGG tracks a market cap-weighted index focused on companies located in developed markets excluding Canada and the U.S., with a history of increasing dividends over time. Management fee is 0.28%. The Vanguard fact sheet describes VIGG as being medium risk.
VUDH tracks a market cap-weighted index focused on common stocks of U.S. companies with higher-than-average dividend yields, hedged to Canadian dollars; management fee is 0.28%. It is also rated medium risk.
In March, Vanguard also launched the Vanguard U.S. High Dividend Yield Index ETF (VUDV, TSX).
In a backgrounder released with the ETFs, Vanguard said Dividend Income ETFs account for $42 billion or 5.4% of total ETF assets in the Canadian market. They include passive funds, fully active mandates and covered call options.
Dividend-focused ETFs have historically shown resilience across many market environments, the document says: “They can also provide stability in uncertain and inflationary environments through reliable cash flows which can partially offset inflation. The companies included in these portfolios tend to be more defensive during periods of market volatility, supported by steady earnings and stronger balance sheets.”
The backgrounder focuses on two main types of Dividend ETFs: those that generate high Dividend Yield, and those that grow their Dividends over time.
High-Dividend Yield ETFs
Vanguard says High-Dividend Yield ETFs are best suited for “investors looking for more immediate income including retirees drawing from their portfolios or those supplementing current cash flow.” Higher starting yields provide more immediate income as the portfolio invests in mature, stable and value-oriented companies, with a higher allocation to sectors like energy, utilities and financials.
Such stocks tend to have a high level of current income, forecast to have above-average dividend yield over the next 12 months; they also sport high-quality balance sheets and dividend streams that can be resilient during market downturns.
Vanguard FTSE Canadian High Dividend Yield Index ETF (VDY/TSX) tracks market cap-weighted index focused on Canadian companies characterized by high dividend yield with an MER of 0.22%.
Vanguard FTSE Developed ex North America High Dividend Yield Index ETF (VIDY) tracks market cap-weighed index that aims to capture the performance of companies characterized by high-dividend yield and located in developed markets excluding the U.S. and Canada with an MER of 0.32%.
The new Vanguard U.S. High Dividend Yield Index ETF (VUDV) tracks a market cap-weighted index focused on U.S. companies characterized by higher-than-average dividend yields, and has a management fee of 0.28%.
The new Vanguard U.S. High Dividend Yield Index ETF (CAD-Hedged), VUDH, tracks a market cap-weighted index focused on common stocks of U.S. companies characterized by higher-than-average dividend yields, hedged to Canadian dollars, and has a management fee of 0.28%.
Dividend Growth ETFs
Vanguard says its Dividend Growth ETFs are designed for “investors with a longer time horizon who want to prioritize total return and a rising income stream over time.” Lower starting yields are offset by dividend growth that compounds over time. The portfolios are “generally broadly diversified across sectors, style neutral and invest in financially disciplined companies that can grow earnings and dividends.”
Those stocks tend to have a higher price-to-earnings ratio and growth rate, consistent income stream across market cycle and showcase an ability to grow their dividend over time. It adds that “Stocks in these ETFs are often chosen based on raising dividends for a minimum of 10 consecutive years.”
Vanguard U.S. Dividend Appreciation Index ETF (VGG) invests in U.S. companies across different market cap segments that have 10 years of consecutive dividend growth with an MER of 0.31%.
Vanguard U.S. Dividend Appreciation Index ETF (CAD-hedged), VGH invests in U.S. companies across different market cap segments that have 10 years of consecutive dividend growth, hedged to Canadian dollars, with an MER of 0.31%.
The new Vanguard Developed ex-North America Dividend Appreciation Index ETF (VIGG) tracks a market cap-weighted index focused on companies located in developed markets excluding Canada and the U.S., with a history of increasing dividends over time with a management fee of 0.28%.
