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Global Dividend Aristocrats Portfolio for Canadian Investors

Frugal Investors Admin by Frugal Investors Admin
January 18, 2020
in Consulting, Investment Resources
9 min read
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Global Dividend Aristocrats Portfolio

The ultimate balanced portfolio of dividend shares in Canada

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In Part II of the series, we explain what the Global Dividend Aristocrats portfolio is and how it earned 8.48% per year over the past five years.

In Part I we covered how Dividend Aristocrats out-perform the market and several reasons why higher dividend yielding companies are more generally able to produce better returns.

The purpose of this article is to take you through the model portfolio and to introduce you to the official Frugal Investors Global Dividend Aristocrats portfolio for Canadian investors. After thirty-five hours of research I have crafted a bespoke and well-balanced income portfolio that is prepared to weather whatever economic storms get thrown its way. Given that a third of your investment return comes from dividends and income alone, it makes sense to focus here.

Today we are going to cover:

  • What the research says about buying shares direct versus using an ETF
  • Introduction to the Global Dividend Aristocrats Portfolio
  • Variations to the portfolio depending on your risk tolerance
  • Historical returns

What the Research Says – To buy or not to buy shares direct…

Where you live in the world – believe it or not – dictates how you should invest your money. I think I truly began to understand this in Year 8 of my journey and as a direct result of owning assets in different regions, in local currencies. If you live in the U.K. / Britain then please read here.

Canada is a great place to follow the Global Dividend Aristocrats strategy and it is home to some excellent companies, who are returning cash to shareholders and maintaining excellent balance sheets.

If the majority of your assets are in Canadian dollars right now ($), then you need to be careful about taking on too much overseas exposure by buying foreign shares directly. There are currency costs through your broker for each transaction, foreign withholding taxes on income (typically net 15%), and over long periods of time currencies like the US dollar look primed to move lower against the Loonie.

In addition, the cost of self-managing a portfolio (in time, and trading costs) is excessive especially if you have a part-time or full-time career. The risk is that you under-perform the market. In Canada, with the S&P/TSX Composite Index yielding you 3.31% and producing an 7.54% annual return over 10 years, it’s hard to argue that spending huge amounts of your time individually investing is going to gain you significantly higher returns. Although we do plan to show how self-selecting Canadian dividend aristocrats can make money over time, it is hard work to manage stocks individually, which is why 92-95% of active traders under-perform the market over 15-year periods.

Global Dividend Aristocrats portfolio

*Drum roll*

The original intention, at the outset, was to build a portfolio of individually owned stocks and shares that you could own directly. It is possible to do this in Canada and we intend to run a ‘Part III’ where we explore this in detail. That being said, it’s hard work, and not recommended for the average investor without serious time investment. In addition Europe, the United States, the U.K., Japan and Australia are enticing markets for dividends and have hundreds (if not thousands) of established players.

The results of the Frugalist Investor’s detailed analysis suggest that getting exposure to global dividend aristocrat ETF’s is the simplest, easiest and lowest cost way to invest in this section of the market. The portfolio presented below gets you access to a large cross section of those businesses at a reasonable cost.

Global Dividend Aristocrats Portfolio for Canadian Investors Frugal Investors
Name of ETF Tickers %Portfolio
Invesco Canadian Dividend ETF PDC 10.00%
WisdomTree Canada Quality Dividend Growth DGRC 10.00%
SPDR US Dividend Aristocrats ETF SDY 10.00%
Schwab US Dividend Equity ETF SCHD 10.00%
Vanguard Dev. All Cap ex North America Index VIU 50.00%
Vanguard FTSE Emerging Markets Index VEE 10.00%
Vanguard Canadian Aggregate Bond Index VAB 0.00%

Choosing a Risk Profile

There are two fundamental decisions that you need to make as an investor.

(1)

The first is to decide what to invest in. Generally speaking it is better to use a passive approach to investing, because it allows you to make decisions about the ‘type’ of investments you want and the sectors and asset classes you favour; however they have the major benefit of doing most of the buying/selling and asset allocation for you. At Frugal Investors we’ve presented several time-tested strategies, including this portfolio.

(2)

The second key decision is how much exposure to the stock market you are comfortable with taking. This is not a decision to make lightly: how much volatility you experience depends on the amount of money you allocate to equities (stocks and shares) as opposed to fixed income (bonds).

Have a look here for a guide to help you with figuring out your risk tolerance.

Beyond that, though, the Frugalist Investor has created a cheat sheet that enables you to adjust the Global Dividend Aristocrats portfolio for 40%, 60%, 80% and 100% equity exposures. So once you know what risk tolerance you are comfortable with, choose a portfolio below:

Global Dividend Aristocrats Portfolio for Canadian Investors Frugal Investors

For the 80% equity allocation (second to right column) you would need 20% weighting to the Vanguard Canadian Agg Bond fund to achieve a 20% real weighting in bonds overall. For more exposure to Canada and US, simply increase the weighting to these geographies and decrease VIU.

Underlying Holdings

The Global Dividend Aristocrats portfolio (100% equity) has the following sector and country diversification features:

Country Total
Canada 20.00%
United States 20.00%
UK 8.10%
Eurozone 24.80%
Japan 12.05%
ROW 15.05%

It is comfortably weighted towards Canada and the United States, which are home to some of the world’s best dividend aristocrats. The great advantage here is that this closely tracks the S&P Global Dividend Aristocrats index.

The average dividend yield is 2.6%, representing the fact that there are a number of very high-quality and income rich businesses producing stable and regular returns for shareholders.

In terms of holdings and key information here is a snapshot of several ETF’s that form part of the portfolio and a breakdown of their underlying holdings:

Vanguard FTSE Developed ex Nrth Amer ETF VIU 50.00%
Global Dividend Aristocrats Portfolio for Canadian Investors Frugal Investors

The VIU etf has returned 7.35% over the past five years and holds many well-recognized European conglomerates with steady and consistent dividend paying records. Nestle, Roche, Novartis, Toyota, SAP, LVMH and Sanofi are all recognized dividend stalwarts and supply many of the products we use every day. The ETF has great sector diversification, a solid dividend yield, low PE’s and 3692 holdings.

Invesco Canadian Dividend ETF PDC 10.00%
Global Dividend Aristocrats Portfolio for Canadian Investors Frugal Investors

The PDC ETF has returned 9.01% since inception and it holds many of the Canadian dividend aristocrats, which have a track record of increasing dividends for at least 7 consecutive years. Although this is a space dominated by banks and oil companies, PDC does a good job of covering the blue chip companies with the best record of regularly increasing dividends. With a dividend yield of 4.33% pretty much the only downside is the higher 0.55% MER. The WisdomTree fund is its growth-driven cousin.

The US ETF’s are fantastic. Take a look at either of them through Morningstar and you will find a balanced portfolio of businesses that have raised their dividend for 25 consecutive years.

Fundamental Performance

In order to invest in anything – be it individual shares, portfolios of ETFs (that hold shares), bonds, income funds or REITs – you need to understand what is happening underneath. Hopefully the summary above has educated you on what the Global Dividend Aristocrats portfolio is composed of. We will do further deep dives on the holdings in Part III.

What you really need to know, though, is the underlying performance. How has this total portfolio performed over 1-, 3- and 5-year periods?

Name of ETF 1 YR 3 YR 5 YR
Invesco Canadian Dividend ETF 19.91 7.34 7.86
WisdomTree Canada Quality Dividend Growth 18.48 8.45 7.12
SPDR US Dividend Aristocrats ETF 22.84 11.18 10.16
Schwab US Dividend Equity ETF 26.03 14.1 11.52
Vanguard Dev. All Cap ex North America Index 15.82 9.05 7.35
Vanguard FTSE Emerging Markets Index 15.09 9.83 6.88
Global Dividend Aristocrats Return (Portfolio) 19.7 10.00 8.48
S&P Global Dividend Aristocrats Index (Benchmark) 21.44 10.11 7.16
S&P/TSX Composite Index (CAD Benchmark) 22.88 6.89 6.28

The Global Dividend Aristocrats portfolio has beaten the S&P/TSX Composite Index over 3-years and 5-years by 3.11% and 2.2% respectively. In addition it has beaten S&P Global Dividend Aristocrats benchmark over 5 years.

Final Thoughts

Having a geographically and sector-diversified portfolio of global dividend yielding companies makes sense. As we saw in Part I, high yielding businesses tend to significantly out perform their non-dividend yielding peers over periods of 10-15 years and longer.

The Global Dividend Aristocrats portfolio has produced an annual return of 8.48% each year for the past 5 years, which is 2.2% higher than the annual return on the S&P/TSX Composite index as a benchmark.

The constituent ETF’s hold fundamentally high-quality businesses, at a relatively low cost, which are diversified and help you to gain exposure to global dividend shares without spending excessive amounts of money trying to buy foreign shares directly.

From one Frugal Investor to another, the portfolio is well worth considering when it comes to your own investing approach!

Tags: Dividend AristocratsDividend investingGlobal Dividend AristocratsRetirement income
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Comments 2

  1. Avatar Bob Eakin says:
    1 year ago

    Just came across your web page – looks great and warrants some more time to look into but immediately
    brings up the thought below that maybe you might comment on –

    My wife and I have never used our 140K – TFSA benefit – was prepared today to purchase Cdn dividend only stock up to our maximum- but with the Royal now predicting recession in 6 months what is your comment/opinion on time to purchase.

    Also since reading your web page I think I will revisit my individual stock approach and take a hard look into your web EFT portfolio example, easier and I trust end result(s) wouldn’t be much different -appreciate your time

    thank you

    Reply
  2. Frugal Investors Admin Frugal Investors Admin says:
    1 year ago

    Hi Bob – thanks for your comment!

    Timing the market is notoriously difficult, but as it happens we have an approach to finding the bottom of this market through our ‘Market Timing Model’ which you can access here (https://frugalinvestors.com/market-timing-model-sentiment-indicator-indicates-a-sell-13th-march-2020/). We will update this weekly and we hope to give investors our best indication of when it is time to buy. At the moment, the model suggests we have not yet reached that point and we expect corporate earnings results to be very negative between April-May 2020.

    Sign up for our newsletter to receive regular updates and access to the Market Timing Model.

    In general, though, the TSX index has had a 25% fall from peak to trough since February, so you’ve chosen a good time to start putting some capital to work. There could very well be a recession in the next 6 months. It would be prudent to avoid purchasing stocks during ‘up’ days, and to instead start to take advantage of further weakness over the coming months, particularly with capital that you don’t need access to within the next 3-5 years.

    Reply

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