• Today I wanted to discuss dividend ETF’s. I know, many of you will be surprised to hear me discuss using dividend ETF’s. Why? If you are here, chances are that you want to build you own dividend portfolio. And why wouldn’t you?


    Choosing your own stocks has a lot of upside

    -You save on management fees (between 0.20-0.60% usually), those do add up over time
    -You have flexibility over how dividends are reinvested
    -You can decide which stocks to include or not
    -You can decide on your general dividend strategy (focus on growth, avoiding certain industries or names, etc)
    -You actually know what you hold (often, ETF issuers only disclose their holdings periodically)


    That being said, even the most hardcore dividend investors among us might need to scale back on our individual dividend stocks at some point. Why? There many reasons. There are multple reasons (health issues for members of your family or yourself, job obligations, etc). As great as being a dividend investor is, it does require time. Why? To find, research both potential purchases but also current holdings. I’m not one to believe in buying “stocks for life”. Sure, some great dividend stocks can be great for a very long amount of time but that does not mean you can hold them without checking on how they’re doing.


    Lacking time is certainly one reason but so would be reaching a certain age. I know for a fact that we have several readers in their 60s, 70s and even older. That is absolutely incredible. Others are not as fortunate and I do think that over time, as we start to lose some of our ability, it becomes less of a great idea to personally manage our dividend holdings.


    What’s Next? Scaling Back

    At some point, for whatever reason, you might want to start scaling back on dividend stock investing. That can be a permanent decision or not. No matter why though, starting to buy dividend ETF’s can be a good alternative. You don’t need to witch your entire dividend portfolio to ETF’s but over time, you can start putting a portion of those holdings into dividend ETF’s and gradually move towards building your own ETF portfolio (link to BYETFPF).


    How Do Such ETF’s Work?

    You can find out more about ETF’s and building an ETF here but the short story is that an ETF is a fund that holds stocks in a similar way to mutual funds. One difference though is that you buy them on the markets which does means paying commissions upfront but the annual costs are generally much lower.


    How The ETF’s Manage Dividend Payouts

    There are many different alternatives for dividend ETF’s so it’s important to look at the different ETF’s. In general, dividend ETF’s keep track of all payments that they receive and pay back that amount to shareholders on a quarterly basis. Some might choose to pay more than what they are receiving (covered call etf’s for example), or even less. It is even possible for an ETF to aim for a steady dividend payout. I would argue that looking for ETF’s that simply pay back whatever they receive is the best way to go in general.


    Steps To Get Started

    -The first step is to look at different dividend ETF’s that exist in order to determine which one is closest to your dividend investing philosophy. In Canada, some major ones are

    XDV (ishares Dow Jones Canada Select Dividend Index Fund)
    CDZ (Claymore S&P/TSX Canadian Dividend ETF)
    HAZ (Horizons Global Dividend ETF)

    While in the US, there is plenty of choice:

    SDY (SPDR S&P Dividend ETF)
    VIG (Vanguard Dividend Appreciation ETF)
    HDV (iShares High Dividend Equity Fund)


    Researching An ETF

    In general, in order to find information about an ETF.,, the easiest is to go on the website of that’s ETF issuer. For example, for VIG, if you go to Vanguard’s website, we can find more information about it

    On that website there is a summary prospectus that specifies that:

    -Total fees in the fund are 0.18%
    -The fund buys dividend stocks that are known and are likely to increase their dividends consistently over time
    -We can also find the top holdings as of the last date that VIG reported them:

    Research Is Still Involved

    Of course, you might argue that there is also research to be done when buying the ETF in a similar way to dividend stocks. That would be correct. The big difference is that when that choice is done, you can then rely on the ETF managers to do the research, to add & remove stocks from the ETF, to reinvest dividends, etc. That certainly makes it much easier. You can also find out more about building an ETF portfolio, the different steps involved here.


    You Might Not Be There Just Yet

    If you are reading this blog, chances are that you have little interest in letting a fund make the choices for you. That is more than fine, it’s also my case. But in time, you might end up reconsidering and I would argue that building an ETF portfolio with dividend ETF’s among others is a great alternative when you will reach that point. If you are looking for more info on ETF, I’d suggest you get the free ETF eBook written by My University Money

    Any thoughts on this? Do you hold any dividend ETF’s?

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  • Many of you might have been surprised by the title of this post. Why? Rarely do we hear about technical trading when discussing dividend stocks. The main reason is a logical one of course. Dividend investing is all about value and that usually translates exclusively to fundamentals. So there is no surprise in the fact that all of the main things I look for in dividend stocks such as profits, revenues, a strong balance sheet, and others all relate to fundamentals. However, I don’t believe that you should ignore technical indicators when investing. Would I choose a stock based on those indicators? No. However, I would choose a better entry point for my stocks thanks to technical levels.

    Why Technical Levels Matter

    You might not invest based on technical indicators. In fact, if you’re on this blog, it’s safe to say that it’s not your primary concern. That being said, many others pay attention to these indicators which makes expressions such as momentum matter. If you are trying to buy a stock that everyone else is trying to sell, it might not be the best time to do so.

    What I Look At; Moving Averages

    There are dozens of different fundamentals that are used by chartists, the most popular being moving averages. One of the easiest measures to look at is a moving average. It simply indicates where a stock is compared to its average close for a determined period. You can have a 3 day moving average, 5 days, 10, 20, 50, 200, etc. You get the idea. It matters because many investors trade on this information. Very recently, Apple (AAPL) saw its stock decline below its 200 day moving average which it had not done in over 2 years!! That made headlines as many signaled that Apple’s stock might move much lower. You certainly might not believe this information but it’s still useful to know about it since others are trading on it.

    Which Signals To Look For

    Personally, I’m much more interested in longer term signals than short term ones since dividend investing is about the long term. So using a 50 and 200 day moving average has worked well for me.

    Where To Get It

    There are many different sources and one easy free one is StockCharts.com, you can see an example of what you can get here:

    As you can see, GE is slightly above its 200 day average (red) but lower than its 50 day one. It’s a mixed signal.

    What I Use

    I do still use stockcharts but personally I’ve been using trend analysis much more. It’s basically a score between -100 to +100 for each stock that depends on different moving averages. It gives me an easier way to judge the stocks. You can see an example of the result here:

    It is unfortunately a paid service (although not very expensive) but you can try it for free here. If you do, please let me know how you like it.

    Do You Use Technical Levels?

    I’d love to hear if you use them at all and if so, how?

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  • It has been a long time since I reported on my asset allocation. If you have been following the blog for some time now, then you know that I believe that the right asset allocation is important for a dividend portfolio – any portfolio for that matter. Among the academic reasons for a sound asset allocation that covers the right balance between risk and reward which leads to the right level of volatility for a portfolio which also helps determine return, there are other reasons I like asset allocation. In this post I will discuss that reasons and then provide you with an update on what my current allocation looks like.[ad#tdg-embedded]

    Why Asset Allocation is Important to Me

    One of the reasons I find asset allocation so important is that it helps guide me with what asset class to purchase or even sell at any given time. In my own allocation I have, at a high level, outlined the percentage of Canadian equities, US equities, international equities, and fixed income that I need to hold. I have set a target allocation that I want my portfolio to hold and the process is simply a matter of monitoring which assets are above or below target and taking action.

    That action can be either to buy more of the underlying securities making up that asset class or selling some of those securities off. For example, if my Canadian equity allocation is low I might buy some more Royal Bank stock or Canadian value index fund.

    From time to time certain asset allocations can be higher that target. I actually rarely sell in this case as I am constantly adding money to my portfolio which then allows me to bring the other assets in line with the overall assets. This helps reduce transaction costs and does not force me to sell securities that I still believe in.

    The underlying concept here is that I am taking out a good portion of the emotional aspects of the investing process. It become much more mechanical.

    My Current Asset Allocation

    This leads to my current asset allocation. Right now it is pretty close to where I want it to be but there is some work to do in both US equities and international equities. I will do a further review but I suspect I will be purchasing some more international equities in the near future. You may also notice that my fixed income is low – I have decided to take on more portfolio risk by lowering fixed income and investing more in equities. Of course, this allocation may not be for you.

    Click to Enlarge

    I will continue to monitor this asset allocation on a monthly basis and make adjustments as necessary. It has worked for me in the past and I am suspect it will going into the future.

    (Photo Credit)

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