21 Dividend ETFs that outperform

What are we looking for?

Outperforming dividend-focused ETFs

The screen

With Monday’s surprise temporary relief of tariffs between the U.S. and China, equity markets roared back to life, making back much of the losses from the prior weeks to the delight of stock investors who were able to hold onto their positions, an ever-increasing challenge given the formidable volume of news that finds its way to our screens combined with the ongoing market volatility.

Though dividend-paying companies have not been immune to the market volatility over the last few weeks, some investors might have an inherent assumption that they might be less volatile or offer some form of downside protection when the market falls. This idea, however, is more rooted in the fact that consistent dividend paying companies tend to be larger companies operating in mature industries (which tend to be less volatile). Regardless, Canadian investors continue to flock toward income generating stocks. Today, I use Morningstar Direct to look for ETFs that have an explicit focus on dividends and have outperformed their peers after fees.

To do this, I screened across three categories of funds: Canadian, U.S. and Global Dividend Income Equity totalling 217 funds (counting only the oldest share class). Within this universe, I used the Morningstar Rating for Funds (informally known as the “star” rating) to find those that have outperformed peers in their own respective peer groups on a risk-adjusted, after-fee basis. Only four and five-star ETFs were considered. It’s important to note the peer groups include both mutual funds and ETFs.

What we found

The 21 ETFs that met the above screen are listed in the accompanying table, which includes their category, ratings, management expense ratios, trailing returns, yields and inception dates. Though the Morningstar Medalist rating was not included as a screening criteria, I’ve displayed it here to highlight funds that Morningstar believes will outperform peers in the future, based on a qualitative assessment of people (the tenure and track record of the fund managers), process (the consistency of the process and risk management techniques used) and parent (the stewardship qualities of the fund company). I’ve also indicated whether each fund is actively managed (where a portfolio manager is making a choice) or follows a style-based index focused on dividends (“strategic beta”).

This article does not constitute financial advice. Readers are encouraged to conduct their own independent analysis before buying or selling any of the ETFs listed here.

Ian Tam, CFA, is director of investment research for Morningstar Canada.