Building the big Dividend Retirement Portfolio with defensive Canadian ETFs


By Dale Roberts, Cutthecrapinvesting

Special to the Financial Independence Hub

There are a few reasons to play defense. A retiree or near retiree can benefit from less volatility and a lesser drawdown in a bear market. If your portfolio goes down less than market, and there is a greater underlying yield, that lessens the sequence of returns risk. You have the need to sell fewer shares to create income. For those in the accumulation stage it may be easier to stay the course and manage your portfolio if it is less volatile. You can build your portfolio around defensive Canadian ETFs.

For a defensive core, investors can build around utilities (including the modern utilities of telcos and pipelines), plus consumer staples and healthcare stocks. My research and posts have shown that defensive sectors and stocks are 35% or more “better” than market for retirement funding.

I outlined that approach in – building the retirement stock portfolio.

We can use certain types of stocks to help build the all-weather portfolio. That means we are better prepared for a change in economic conditions, as we are experiencing in 2022.

Building around high-dividend Canadian ETFs

While I am a total return guy at heart, I will also acknowledge the benefit of the Canadian high-dividend space. These big dividend payers outperform to a very large degree thanks to the wide moats and profitability. Those wide moats create that defensive stance or defensive wall to be more graphic. And of course, you’re offered very generous dividends for your risk tolerance level troubles.

Canadian investors love their banks, telcos, utilities and pipelines. The ETF that does a very good job of covering that high-dividend space is Vanguard’s High Dividend ETF – VDY. The ‘problem’ with that ETF is that it is heavily concentrated in financials – banks and insurance companies.

Vanguard VDY ETF as of November 2022.

Sector Fund Benchmark +/- Weight
Financials 55.4% 55.4% 0.0%
Energy 26.3% 26.2% 0.1%
Telecommunications 9.0% 9.0% 0.0%
Utilities 6.2% 6.2% 0.0%
Consumer Discretionary 1.9% 1.9% 0.0%
Basic Materials 0.6% 0.6% 0.0%
Industrials 0.4% 0.4% 0.0%
Real Estate 0.2% 0.2% 0.0%
Total 100.0% 100.0%

VDY is light on the defensive utilities and telcos. The fund also has a sizable allocation to energy that is split between oil and gas producers and pipelines. The oil and gas producers will also be more sensitive to economic conditions and recessions.

Greater volatility can go along for the ride in VDY as it is financial-heavy. And those are largely cyclical. They do well or better in positive economic conditions. But they can struggle during time of economic softness or recessions. Hence, we build up more of a defensive wall.

Building a wall around VDY

We can add more of the defensive sectors with one click of that buy button. Investors might look to Hamilton’s Enhanced Utility ETF – HUTS. The ETF offers …

█  Pipelines 26.8%

█  Telecommunication Services 23.5%

█  Utilities 49.6%

The current yield is a generous 6.5%. Keep in mind that the ETF does use a modest amount of leverage. Here are the stocks in HUTS – aka the usual suspects in the space.

BMO also offers an equal weight utilities ETF – ZUT .

And here’s the combined asset allocation if you were to use 50% Vanguard VDY and 50% Hamilton HUTS.

  • Financials 26.7%
  • Utilities 24.9%
  • Energy 26.5%
  • Telecom 16.2%

Energy includes pipelines and oil and gas producers. And while the energy producers can certainly offer more price volatility, there is no greater source of free cashflow and hence dividend growth (in 2021 and 2022). In a recent Making Sense of the Markets for MoneySense Kyle offered …

Shareholders liked what Canadian Natural Resources had to say the most, as the company announced it was raising its dividend by 13%, making it a 45% increase overall this year. With the stock up a whopping 50% this year, it looks like investors are really digging the commitment to passing profits on immediately.

The dividends and special dividends have been outrageous. After taking some incredible capital gains in the space I moved to a Canadian energy dividend approach several months ago. You may decide to sprinkle in additional inflation protection. I’ll leave that up to you. You can also look to the Purpose Real Asset ETF – PRA.

Adding more defense in the U.S.

We want to be careful with our Canadian home bias. That concentration can decrease diversfication, limit growth and leave us with too much concentration in one currency and one economy.

For Canadian Dollar ETFs, you can look to Harvest ETFs for Healthcare – HHL.

And for the consumer staples sector there is STPL from BMO ETFs. BMO also offers ZHU for the healthcare space.

You’ll find many U.S. dollar ETFs for U.S. healthcare, consumer staples and utilities coverage. Google will quickly help you find the many options. And you’ll find ETFs for consideration in my post for Seeking AlphaThe All-Weather ETF Portfolio For Retirement. Remember to keep your U.S. ETFs in dedicated U.S. dollar accounts. Questrade offers dual currency accounts for all account types.

At Questrade, you can buy ETFs for free.

I hold accounts at Questrade, Wealthsimple and TD Direct.

Putting the U.S. and Canadian ETFs together

Most Canadian self-directed investors are greatly overweight Canada. Most estimates suggest that Canadians hold about 70% of their portfolio assets in Canadian stocks and ETFs.

It’s a personal decision. And it may not be a bad idea to be more overweight Canada these days given that there is greater value and greater income (dividends) in Canada. That said, we should recognize the importance of U.S. and international equities and fixed income. You might at least target a 50/50 mix.

Again, one might consider that equal mix of VDY and HUTS for Canadian ETFS. In the U.S., the retiree or defensive investor might consider adding the defensive ETFs to a core dividend ETF such as Vanguard’s VIG. You will see why in Dividend Growth And Your Retirement Portfolio.

For example:

  • Healthcare HHL 40%
  • Consumer Staples STPL 40%
  • Vanguard VIG 20%

Bonds vs bond proxies

And while bond proxies (those defensive ETFs) are popular these days, the real thing (aka actual bonds) are looking much more attractive as well. The yields are compelling and the bond ETFS are likely to deliver price gains once the central bankers are successful in breaking things, aka the economy. When or if we get a recession, the central bankers will begin a rate cut cycle. That’s good for bonds. Yes, the traditional balanced portfolio is likely to work again.

While using the bond proxies might limit the need for heavy amounts of cash and bonds, I am of the opinion that it is still very useful to have an allocation. The retiree might at least maintain a 10% to 15% cash and bond allocation in each of Canadian and U.S./International accounts.

Head on over to My Own Advisor and you’ll see that Mark favours a cash position over bonds. I’d be in favour of cash and bonds. Bonds have historically outperformed cash for the retirement portfolio. That said in a rising rate environment, cash and very short term bond funds (cash-like) will outperform.

You can put all of the above into practice with a portfolio of individual stocks. Check out our U.S. and Canadian stock portfolio performance.


Build a defensive portfolio, add inflation protection. That might help you SWAN – sleep well at night.

Keep in mind, this is not advice. Think of these posts as ideas for consideration. Ensure that you understand all risks and tax considerations. Also, there is nothing more important than the greater financial plan. You might consider an advice-only planner.

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Dale Roberts is the owner operator of the Cut The Crap Investing blog,  and a columnist for MoneySense. This blog originally appeared on Cut the Crap Investing on Nov. 5, 2022 and is republished on the Hub with permission. 

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