BLK - BlackRock

XDV ETF Review: Not Your Best Option

Affiliate Disclosure

XDV ETF, or Blackrock’s iShares Canadian Select Dividend Index ETF, provides diversified exposure to 30 high-yielding Canadian companies in the Dow Jones Canada Total Market Index.

The index is almost like trying to replicate the “Dogs of the TSX” since it focuses on high yield holdings from a list of Canadian blue-chip stocks.

The fund was created on December 2005 and invests primarily in large Canadian equity securities. The intention is to replicates the performance of the Dow Jones Canada Select Dividend Index, net of expenses.

Pros of iShares XDV ETF

  • Receive high yield and growth together.
  • iShares XDV holds 30 high-yielding Canadian blue chip companies
  • iShares XDV provides regular monthly income (distribution as opposed to dividend).
  • It seeks to provide long-term capital growth and re-balances annually.
  • Does well against the TSX.

Cons of iShares XDV ETF

  • It is a high-cost ETF compared to Vanguard VDY ETF.
  • Lower yield than Vanguard VDY ETF.

iShares XDV ETF Facts

  • Inception Date: December 19, 2005
  • Benchmark: Dow Jones Canada Select Dividend Index
  • Net Assets: $1,540M
  • MER: 0.55%
  • 12 Month Trailing Yield: 4.11%
  • Distribution Yield: 3.87%
  • Dividend Schedule: Monthly

iShares XDV MER – Management Expense Ratio 

At 0.55%, XDV has a good MER but you can have a cheaper MER with a Vanguard ETF such as the VDY.

The MER is what Blackrock takes to manage the fund for you. It’s much cheaper than mutual funds and in some cases cheaper than investing on your own.

Mutual funds can charge over 2% and it robs you of your returns. It’s time to ditch your mutual funds and switch to ETF ASAP. Many brokers such as Questrade offer free ETFs.

iShares XDV Performance

iShares XDV has a decent performance by keeping up with the TSX index. Since most investors can’t beat the index, XDV does well.

XDV vs TSX vs SP500
Dividend Adjusted Chart by Stock Rover - Try it out.

The annual rate of return for iShares XDV ETF since inception is 6.25%. When you compare with my annual ROR of 14.40%, there is a big difference. Just look at the S&P500 index to get a different perspective.

Take your TFSA account as an example. The rules are the same for everyone and I mean everyone. The growth is ultimately a factor of your investment performance provided you make your TFSA contribution limit every year. The annual performance of an ETF matters as you can see below the growth over 20+ years.

iShares XDV ETF Top 10 Holdings

Below are the holdings part of the XDV ETF at the time of writing sorted by market capitalization. The ratio of weigth can fluctuate on any months at the discretion of the fund manager in accordance with the fund target.

At the time of writing, the Canadian Imperial Bank of Commerce was the most significant constituent in the XDV ETF with an 8.11% weightage, followed by Canadian Tire Ltd. with a 6.86% allocation. The Bank of Montreal is its third-largest holding, accounting for more than 6% of iShares XDV’s fund allocation.

The top 10 holdings account for more than 50% of the portfolio and six out of the top ten holdings are leading Canadian banks (Big Six of Canada) accounting for nearly 34% of the portfolio. So this ETF also provides a good way to invest in the Canadian banking sector.

iShares XDV ETF Sector Allocation

iShares XDV is heavily weighted towards the financials which is technically how the TSX is weighted. As a high dividend yield ETF, you should compare it with other dividend ETFs.

wdt_ID Sector Ratio
1 Financials 53.98
2 Utilities 12.05
3 Communication Services 11.62
4 Consumer Cyclical 6.91
5 Energy 6.11
6 Basic Materials 5.23
8 Industrials 3.45
9 Consumer Defensive 0.00
10 Real Estate 0.00
11 Cash 0.66
12 Technology 0.00

Why hold iShares XDV ETF

In short, you want to hold it for the dividend and retain some sort of appreciation over time. However, do note that the ETF keeps up with the TSX ONLY when the monthly distribution is re-invested.

XDV vs VDY vs XIU Dividends 2021
Without Dividend Re-Invested
XDV vs VDY vs XIU 2021
With Dividend Re-Invested

If you want the dividends, it’s not clear you will get dividend growth the same way the best banks and the best utility stocks will do for you.

The iShares XDV ETF holds many of the Canadian banks and insurance stocks in its portfolio, dividends from which are generally safe. It is an ideal investment for risk-averse investors (such as Investors approaching retirement) seeking regular monthly income and planning to hold the investment for the medium to long term.