Investing in dividend stocks allows for creating a portfolio of passive income and eventual financial freedom, due to the effects of compounding by investing with a long-term horizon. However, if you don’t have much capital to start off with, it makes no sense to buy into individual stocks, simply because the trading fees from your stock broker will eat up your investment.
An easy way to start of with dividend investing, even if you have $10K or more but you’re a beginner, is to buy into a fund which holds many different blue chip dividend paying stocks. These funds are essentially a single stock which trades on the market, but the fund will hold many different stocks from various sectors of the economy. When searching for a good fund, I prefer to go for exchange traded funds, which can be bought and sold and traded during the day, just like a normal stock (something an mutual fund doesn’t allow, as they’re settled at the end of the day). My favourite right now would be iShares Core High Dividend ETF. This has a good dividend yield of about 3.5%, and since inception, it has grown 12.24% each year. If you invested $10K back in 2011, your investment would have more than doubled (Figure 1). In addition, it is well diversified, with large cap companies from many different sectors. Not to mention the extremely low fee of just 0.08%. It also allows automatic reinvestment of the dividend payouts, so you can grow your investment without commission fees.
Figure 1. Growth of $10K if you had invested back in 2011. (Source: blackrock.com)
If you’re in Canada, there is an ETF, also from Blackrock, for Canadian blue chips, the iShares Core MSCI Canadian Quality Dividend Index ETF. It’s new, so there is no performance data yet. But the yield is high at almost 4% and also allows dividend reinvestments. If you use Questrade, you can even buy the ETF for free. The MER fee is a low 0.10% too! I use this as a core holding in my Questrade TFSA account. This ETF is weight heavily in the big 5 banks and energy, but that is the bulk of Canada’s economy after all. I do balance things out with individual stocks from other countries and also with other non-stock investments.
So there you have it, these are two nice dividend ETFs which you can use to build up your dividend income portfolio! Don’t forget to checkout the book below for useful advice on how to build up a dividend portfolio for eventual financial freedom:
Get Rich with Dividends: A Proven System for Earning Double-Digit Returns (Agora Series)
Disclaimer: This post is my own personal opinion. I am not a professional financial adviser and am not responsible for your own investment outcomes.
Categories: Stock market