Holding a single stock for the long term isn’t impossible, but it comes with enormous company-specific risk. For retail investors who want a simple, steady approach to long-term investing, what’s the smartest choice if you could only pick one?
The answer: don’t buy a single stock. Buy a single ETF – one that behaves like a fully diversified portfolio and pays monthly dividends. On the Toronto Stock Exchange, the iShares S&P/TSX Composite High Dividend Index ETF (TSX:XEI) stands out as the best choice.
One-Click Access to Canada’s High-Dividend Blue Chips
The XEI ETF trades like an ordinary stock on the Toronto Stock Exchange, but it is actually a low-cost index ETF that bundles a $4.1 billion portfolio of high-dividend Canadian stocks. Instead of tying your financial future to a single company, XEI spreads your investment risk across 75 different holdings, prioritising top-tier Canadian blue chips with attractive yields.
Moreover, investors gain broad sector diversification across the strongest pillars of the Canadian economy. The ETF’s largest sector allocations include financials at 32.8%, energy at 29.6%, and utilities at 12.8%. Communications, consumer discretionary and real estate stocks also contribute meaningful weights of 7.8%, 5.9% and 4.2%, respectively.
Best of all, this comprehensive diversification does not come with a hefty fee. XEI features a low management expense ratio (MER) of just 0.22%, which translates to $2.20 for every $1,000 invested – leaving most of the net return intact to compound over time.
A Reliable Monthly Dividend Growth Record
For long-term buy and hold investors, steady cash flow is a major advantage. XEI pays a reliable monthly dividend, currently offering an annualised dividend yield of 3.6%. Even better, these payouts have room to keep growing, because most of the ETF’s holdings are proven dividend growth stocks. For example, its portfolio includes utility giant Fortis, which has raised its dividend every single year for 52 consecutive years and counting.
At present, about 45% (nearly half) of XEI’s holdings are also constituents of the iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (TSX:CDZ). That means nearly half of XEI’s portfolio consists of elite dividend stocks that have successfully increased their payouts for at least five consecutive years. This high quality roster has driven XEI’s overall dividend to grow by an impressive 130% since 2011.
Impressive Historical Performance, Easily Beating the Broad Market
XEI is much more than a defensive income play – it has proven to be a total return powerhouse. Year-to-date, the ETF has already delivered a total return of 22.4%. Looking at a longer horizon, since its inception in 2011, investors who bought and held XEI would be sitting on a stellar 335% total return – comfortably outperforming the S&P/TSX Composite Index’s total return of 291% over the same period. Breaking down those gains, monthly dividend distributions did the heavy lifting, supplementing a 99% capital gain to achieve that remarkable total return.
The Bottom Line
If you are looking for a single ticker that offers broad sector diversification, low management fees, consistent monthly cash flow, and a strong long-term track record, the XEI ETF is an extremely attractive choice. It is a solid foundational holding for a long-term buy and hold strategy, even in registered accounts. For investors who simply want to “buy and hold,” sometimes the simplest answer is indeed the best answer.
