The #1 Canadian Dividend ETF according to the Shareholder Yield Test

In the past month we have written several posts on using Shareholder Yield as a broader measure of dividend performance, first introducing the concept, then looking at which individual Canadian stocks rate best according to this measure. Today we'll compare the main Canadian dividend ETFs against the measure (see our January post comparing these ETFs on a range of other factors). For a benchmark, we'll also look at the stats for the ETF formed of the 60 largest and most liquid Canadian companies, the iShares S&P/TSX 60 Index ETF (TSX symbol: XIU). After all, if the dividend ETFs don't look any better than the benchmark, why bother with them?

The Comparison Method
First, we had to calculate the Shareholder Yield for all the stocks held by all the dividend ETFs. There are 161 different stocks held by at least one ETF. Then we counted how many of the stocks in each ETF had a positive or a negative Shareholder Yield. As a supplement, we have included the stats for Total Payout Yield, formed as the sum of straight dividend yield and net share purchase/buybacks yield, which is used as the basis for several ETFs in the USA (see our first post for details) though none yet in Canada. Payout Yield gives a better representation of dividend performance than only dividends (to understand this, see the various articles and research papers linked to by Mebane Faber). We did this to see whether there was any consistency in results. Fortunately, we would say yes, both Shareholder Yield and Payout Yield paint the same picture of the ETFs.

The Results
Our comparison table below shows Shareholder Yield in the light blue cells and Payout Yield in the yellow cells, with the total ETF stats at the bottom. Green text is positive and/or good numbers while red text is negative / bad. Within the table, the detailed stats are shown for all the 30 individual stocks held by the ETF that has impressed us the most, the iShares Canadian Select Dividend Index ETF (XDV).

XDV looks significantly better than any other ETF

• It is the only ETF holding a much greater proportion (67%) of companies with positive Shareholder Yield vs the benchmark XIU (57%), or the gamut of all the 161 companies across all the dividend ETFs (also 57%). Even the stocks with negative numbers held by XDV are not extreme - the worst is -7.7% while the bottom stocks of the overall table (not shown) are in the high negative 90 percents and worse.
• XDV's 90% proportion of holdings with positive Payout Yield is also well above both XIU's 82% and the "gamut" range's 78%
• XDV holds all but one (missing only Potash Corp) of the Shareholder Yield superstars (see post on the individual stocks) shown in green text

In sharp contrast, none of the other dividend ETFs looks any better on Shareholder Yield than either XIU or the overall dividend stock average. Only one - CDZ - manages to exceed XIU's Payout Yield.

Somehow, XDV's vaguely defined "rules-based methodology including an analysis of dividend growth, yield and average payout ratio" seems to achieve the closest alignment with Shareholder Yield. XDV's cumulative five-year total return to the end of August 2014 of 79.05% far outstrips XIU's 57.11%. The big question - will it continue? We believe there is a good chance, though perhaps not to the same degree, based on the research, but there are no guarantees.

Cherry-pick high Shareholder Yield stocks - Investors willing and able (i.e. with sufficient funds to properly diversify by buying 20 or so companies) to invest in individual stocks may wish to select stocks with attractive Shareholder Yields and ally that to other stock evaluation methods such as ratio analysis to make a final choice. To that end, below is more of our working table sorted by Shareholder Yield. Stocks not previously shown above, i.e. not held by XDV, have paler blue cells.

Update 30 September: We had no inkling this was coming but S&P Dow Jones Indices and TMX Group have teamed up to create a Canadian stock shareholder yield index, whose constituents are listed here on the TMX website. Horizons ETFs is apparently planning to launch an ETF based on the index according to this Financial Post article.

Disclaimer: This post is my opinion only and should not be construed as investment advice. Readers should be aware that the above comparisons are not an investment recommendation. They rest on other sources, whose accuracy is not guaranteed and the article may not interpret such results correctly. Do your homework before making any decisions and consider consulting a professional advisor.