Retirees and those nearing retirement are looking for ways to get income from their portfolios and today’s low interest rate environment doesn’t offer up many attractive options. Better yields can be found in the stock market, but that comes with some risk and many would rather play it safe.
Can we find a happy medium between risk and reward? Perhaps we can get there with a unique blend of indexing and dividends.
Enter the Tangerine Dividend Portfolio. Launched earlier this month, this new fund combines capital appreciation and dividend income while maintaining the key features of Tangerine’s four existing portfolios: low-cost and long-term investing through an indexing strategy.
The Tangerine Dividend Portfolio is made up of three distinct asset classes: 50% Canadian dividend equity, 25% U.S. dividend equity, and 25% international dividend equity. Dividends are distributed annually, in December.
The Portfolio’s investment strategy is designed to track the index performance of the MSCI Canada High Dividend Yield Index, the MSCI USA High Dividend Yield Index, and the MSCI EAFE High Dividend Yield Index.
All Tangerine Investment Funds use an indexing strategy, which is an alternative to traditional, active management where someone is picking and choosing individual investments that they hope will outperform the market. The management expense ratio (MER) is 1.07%, which is about half the industry average.
This all sounds great, but I’m sure you want to know more about the investment returns and dividend yield. Let’s take a closer look at the three indexes that make up Tangerine’s Dividend Portfolio:
MSCI Canada High Dividend Yield Index
This index targets companies with high dividend income and quality characteristics and includes companies that have higher than average dividend yields that are both sustainable and persistent.
Only securities with a track record of consistent dividend payments and with the capacity to sustain dividend payouts into the future are eligible index constituents. Such tough scrutiny means that just 22 stocks made the grade, including:
- TransCanada Corp
- Penbina Pipeline
- Bank of Nova Scotia
- National Bank of Canada
- Shaw Communications
- Rogers Communications
- Royal Bank of Canada
- Inter Pipeline
- Telus Corp
The index’s annualized return since December 31, 1998 is 10.95% while its current yield as of October 31, 2016 is a juicy 4.28%.
MSCI USA High Dividend Yield Index
This index takes a similar approach but on a much larger scale with the U.S. market. 128 stocks make the grade, including Microsoft, Johnson & Johnson, and Exxon Mobile.
The index has an annualized return of 7.20% since December 29, 2000 and has a dividend yield of 3.27%.
MSCI EAFE High Dividend Yield Index
This international index is made up of 120 stocks from the U.K., Germany, France, Australia, and Hong Kong, to name a few, and includes constituents such as GlaxoSmithKline, BASF, and Vodaphone Group.
Annualized returns are 7.65% since June 30, 1995, although the index’s 10-year returns have been less than spectacular, at 1.16% per year. That said, the index currently yields an attractive 4.77%.
Tangerine Investment Funds have long been popular choices for investors looking for an alternative to the high fees that actively managed mutual funds typically charge. Its Balanced Portfolio is even listed as a one-fund solution in Canadian Couch Potato’s model portfolio section.
The Tangerine Dividend Portfolio is not only a great candidate for those who are retired, or about-to-retire, but is also an appealing option for anyone who wants a nice blend of high-quality dividend income, the potential for capital gains, and diversification outside of Canada.
I like that Tangerine kept its core indexing principles intact while developing a unique way for investors to tap-in to high yielding dividend stocks from around the world. It’s even better that, with the indexes chosen, these dividend stocks must pass the highest levels of scrutiny to remain in their respective indexes.
Sure, there’s no such thing as a truly safe stock. But investors that aren’t satisfied with puny bond yields can sleep well at night with a low cost, broadly diversified, well managed portfolio of dividend stocks that would be almost impossible to construct on their own. That’s why the Tangerine Dividend Portfolio is worth a look.