High Yield Stocks - Where's The Growth?

If you take a quick look at the top ten components of the Canadian Dividends Aristocrats Index ETF (CDZ) you'll find all high yield stocks.

High yield equates to high risk. If that's how you want to spend your money then go ahead. Speaking of spending money, to hold the ETF it will cost you a MER of 0.66%.

On a 100K portfolio that is $6,600 per year or $550 a month. That monthly amount is substracted from your total portfolio so you don't much notice. It bleeds out slowly.

YTD and let's call it pretty much the first half of the year the fund is down 3.4%. I know it's just a short term glimpse and not indicative of long term performance but it's still losing money and expensive to own just to try and generate some monthly income through high yield stocks.

The ten year return for CDZ is almost 6%. It's not really much better than it's 5 year return. The fund is stalling out and not growing at all. Distributions have in my opinion just sucked. The fund paid unit holders $2.08 a share in 2014 and now sliding down to a low of 99 cents a share in 2017. 

In sum, there has been no growth in the dividends. Why do they call this an aristocrat fund? In 2010 they paid out 0.93 cents in dividends and 7 years later we're at 0.99 cents. Absolutely brutal if you ask me. If you're an income investor your income is not rising as I'm sure you wanted it to when you bought this fund.

It's expensive to buy and hold. It has no growth in price or distributions. Why do people index and buy these products for income? When a company announces a stock split, you also will never see it or benefit from it. I believe in building your own portfolio of dividend growth stocks. You need that growth in yield and price to keep ahead of inflation. Y + DG = Total Return. You won't find either here.

CDZ Top Ten Holdings

Corus Entertainment

Enbridge Income Fund Holdings (closing soon)

Altagas

Transalta Renewables

Gluskin Sheff

Gibson Energy

Alaris Royalty

Exchange Income Corp.

Interpipeline

Granite Real Estate Investment

If you research each one of these stocks you will see news releases highlighting all the troubles they have experienced in the past twelve months. Corus is down over 40% in the last year. Enbridge Income is being folded back into the parent company. Alaris has invested into companies that can't pay them back and loans are being re-structured. 

I also don't touch energy stocks for my retirement money. Interpipeline and Gibson are way too volatile for income investors. 

The other main problem for me is diversification. The fund holds 80 stocks. I just believe in a more concentrated portfolio. Buy the best and not the most.

Breaking it down further after expenses your yield is 3% on that 100k portfolio. After purchasing your units after today's closing price of $25.82 (estimate) your monthly income works out to $348.56 and remember that total has been dropping every year for the last four. Probably because 25% of the fund is comprised of energy stocks. That's how they suck you into it's yield play but as we've seen the yield sucks anyway. 

You can do a lot better by picking and buying your own stocks. It feels better and is more fun anyway.

Do you own any Dividend ETFs? What do you think of CDZ and or investing in high yield stocks?

Related Post: Buy For The Dividends

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