Do you invest in ETFs or Exchange Traded Funds? For most investors, they are the easiest way to get exposure to a large portion of the stock market. They can be cost-effective if they have a low expense ratio, and can even pay you consistent dividends. Warren Buffett himself says that for a majority of people, investing in low-cost index funds is the best way to go. So in this iShares XEI ETF review 2023 article, we’ll ask the question: Is XEI the best high-dividend ETF in Canada?
For those investors who are seeking income through frequently distributed dividends, the iShares S&P/TSX Composite High-Dividend Index ETF is a great choice. This fund has a high yield that pays monthly dividends and has a reasonable MER of just 0.22%. By owning XEI, you will be invested in 75 of the best dividend-paying stocks on the TSX.
Is XEI.TO worth investing your money in? iShares from Blackrock is one of the world’s predominant ETF providers. It has over $2 trillion in total assets under management across over 800 different financial products that are available around the world. It is definitely one of the most trusted names in the financial industry, along with Vanguard. In this iShares XEI ETF review article, we will discuss some key facts, the top holdings, the fund fees, the recent performance, and if it deserves a spot in your portfolio.
XEI ETF Review: What is XEI ETF?
Before we get into the details, let’s talk about what the XEI ETF is. This dividend ETF was first introduced by Blackrock in April 2011. With more than 12 years of historical data, we can get a fairly accurate view of how this fund has performed. As of May 2023, XEI has nearly $1.5 billion in net assets invested in this ETF.
XEI is an all-equity ETF which means it is 100% invested in Canadian stocks. It holds 74 of the best dividend-paying companies in Canada with a fairly even weighted allocation.
This iShares dividend ETF is passively managed and rebalances on a quarterly basis. It is designed to track the performance of the S&P/TSX Composite High Dividend Index, net of expenses.
Here are some key facts about the XEI ETF as of November 2023:
|Inception Date||April 12, 2011|
|Number of Holdings||74|
|MER (Management Expense Ratio)||0.22%|
|Assets Under Management||CAD $1.429 billion|
|12-Month Trailing Distribution Yield||5.35%|
XEI Management Fees and MER
When looking at ETFs, one of the most important factors is how much the fees are. XEI has competitive management fees, but they are not the lowest on the market. In general. the lower the fees are the more of your gains you will keep over the long run. So what exactly are the management fees and MER for an ETF?
The two are not the same although they are often used interchangeably. The MER includes the management fee, which is why you might see the MER as a higher number. The MER essentially means how much the fund manager, in this case, Blackrock, is charging you to own this ETF. XEI is passively managed but has an MER of 0.22%. This is about the average for dividend-paying ETFs in Canada.
What does an MER of 0.22% look like? An MER of 0.22% means that for every $10,000 you have invested in XEI, you pay an annual fee of $22.00. In the grand scheme of things, these fees aren’t too bad, especially when you consider a monthly dividend distribution. This is also an excellent example of why we say low-cost ETFs make a huge difference over the long run.
|XEI Management Fee||0.20%|
|XEI MER (Management Expense Ratio)||0.22%|
XEI Holdings Breakdown
When discussing the holdings of an ETF we typically talk about how much the weighted allocation each stock has in the fund. In XEI, you get to own 74 of the best dividend-paying stocks in Canada all in one convenient ETF.
Canadian investors know that the TSX is full of high-dividend-paying stocks. The strongest sectors in Canada are financials and energy, which provide some of the best dividends around!
Here is a list of the top ten holdings in XEI as of November 2023:
|Asset Name||Asset Ticker Symbol||Weighted Allocation in XEI|
|TC Energy Corp||TRP.TO||5.19%|
|Canadian Natural Resources Ltd||CNQ.TO||5.16%|
|Suncor Energy Inc||SU.TO||4.99%|
|Royal Bank of Canada||RY.TO||4.89%|
|Bank of Montreal||BMO.TO||4.31%|
No surprises with the holdings in XEI: some of the largest banks and energy companies in Canada. As you can see, all of the top ten holdings have a more-or-less equal weighting in this ETF. Here is the sector allocation breakdown for XEI as of November 2023:
|Sector||Allocation in XEI ETF|
|Cash or derivatives||0.36%|
Again, not surprisingly, XEI has nearly 60% of its sector allocation to the financial and energy sectors. Given that this is a Canadian dividend ETF, this is to be expected as these two sectors dominate the TSX.
XEI ETF Performance
How has XEI performed as an ETF over the years? Let’s take a look.
On a cumulative basis, XEI has returned a total of 104.76% to shareholders. This saw an average annual return of 5.88% which slightly trails the benchmark average annual return of 6.20%. Don’t forget that this does not take into account any dividend reinvestment. The total returns for shareholders would be much higher if we factored in a DRIP account.
XEI seems to alternate good and bad annual performances. In 2022, it returned just 0.45% compared to the 35.65% return in 2021. Likewise in 2020, XEI posted a loss of 7.56% versus a rise of 25.43% in 2019. So far in 2023, it has provided a negative return of -4.17%.
The Pros and Cons of Holding XEI
The name says it all: the best part about holding XEI is the monthly dividend distribution. With a 5.66% yield, the most recent monthly distribution was about $0.11 per share.
XEI provided stability as well. It holds some of the best blue-chip Canadian stocks on the TSX, and investors can sleep easy knowing that XEI is a safe fund to hold even when the markets are volatile.
The MER of 0.22% isn’t the lowest in Canada but it is an acceptable one compared to other dividend ETFs.
Holding an all-stock equity portfolio like XEI can be risky, even if they are safe, blue-chip stocks. As we can see, XEI does poorly in years where the stock market has a volatile performance.
You won’t see as much capital appreciation from XEI. It will provide an average of about 7% growth per year which historically has trailed major indexes like the S&P 500.
XEI vs VDY
VDY.TO is the Vanguard Canada FTSE Canadian High-Dividend Yield Index ETF. It is often used as a direct comparison for those interested in investing in XEI.
The MERs are identical for these two ETFs at 0.22% each. In terms of the distribution yield, XEI has a slight edge at 5.66% compared to 5.35% for VDY. VDY’s most recent monthly distribution amount was $0.152 per share.
In terms of holdings, VDY holds 53 stocks compared to XEI’s 74. VDY holds a 54.41% sector allocation to financial stocks and its top two holdings, RY.TO and TD.TO account for more than 25% of the weighting of the entire fund.
Overall both ETFs are great for dividend investors in Canada. VDY might be a bit too concentrated in banks for some investors so XEI’s balanced portfolio approach will appeal to some. Canadians do have more invested in VDY as the fund has more than $2.05 billion in AUM.
XEI vs ZDV
ZDV.TO is the BMO Canadian Dividend ETF from BMO Global Asset Management. This ETF was founded in October 2011 and has about $952 million in net assets invested.
This fund has a higher MER than both XEI and VDY. ZDV has an MER of 0.39% which means you will pay $39 for every $10,000 in ZDV. The BMO Canadian Dividend ETF pays out a monthly distribution with an annualized yield of 4.81%. The most recent distribution was $0.07 per share.
ZDV holds 52 different holdings and takes a much more balanced approach to portfolio construction than VDY. In this way, it is much more similar to XEI when it comes to its holdings.
The higher MER and the lower distribution yield make XEI and VDY more appealing options among Canadian dividend ETFs.
XEI ETF Review: Is XEI Worth Adding to Your Portfolio in 2023?
XEI is an iShares Canadian dividend ETF that distributes monthly dividends with an annualized yield of 5.66%. It has a MER of 0.22% and holds 74 different dividend-paying stocks on the TSX.
Of the three Canadian dividend ETFs we looked at, XEI is the most appealing. It has a balanced portfolio of stocks and pays out a nice dividend each month for income investors. If you are looking for a steady stream of cash flow to your portfolio each month, XEI makes for a great addition to any diversified Canadian portfolio.
Remember, this is never meant to be financial advice. Do your own research and make sure that investing in XEI matches your own risk tolerance, investment horizon, and investing goals. Use this guide as a starting point but never as a reason to blindly buy the XEI ETF!