High Cash flow from Canadian Dividend Payers

Canadian investors love Canadian companies, and dividends might be a big reason why. Canadian stocks represent between three and four per cent of global market capitalization, but Canadian investor portfolios are often far more heavily invested in domestic companies. 

There are probably plenty of factors explaining that preference. It might be tax considerations, valuations, or even just personal familiarity. It may be worth noting, however, that some of Canada’s largest and most popular companies pay high dividends. 

Those high dividends can be a big contributor to overall returns. Look at the S&P/TSX 60 from January of 2018 to 2023. Price return alone nets out at 4.96%. Total return including dividends from that same period is 8.37%. That’s a delta of 3.41% attributed to dividends. The S&P 500 over the same period has a delta of only 1.91%. 

The dividends paid by some of Canada’s largest companies are all the more appealing given the federal dividend tax credit, which can offer a tax break on dividends paid by taxable Canadian corporations. 

To be fair, if we ended that comparison in 2021 returns south of the border would be much higher. 2022, however, showed some of why Canadian investors buy Canadian stocks. Canadian equities outperformed broader markets even without equities last year, thanks to a skew towards energy, utilities, large-cap financials and consumer staples. 

The case for Canada, therefore, seems relatively strong. Large-cap companies with dividend track records, are often exposed to some defensive sectors. That’s a value proposition neatly encapsulated by the Harvest Canadian Equity Income Leaders ETF (HLIF:TSX).

An ETF for Canadian leaders, dividends, and covered call options

HLIF is an ETF designed to pay cashflow and offer market growth prospects. It holds a basket of 30 stocks, all of which are the large, Canadian dividend payers that so many Canadian investors love. 

These are companies like Enbridge, Royal Bank, TELUS and Canadian Tire. They tend to have dominant market shares in their industries and a long track record of creating shareholder value. Almost every Canadian knows these companies. 

Inside the HLIF ETF, these companies’ already high dividend yields are amplified. To achieve a higher yield, Harvest ETFs’ uses their active & flexible covered call options strategy. Through that strategy, Harvest ETFs portfolio managers sell call options on a flexible percentage of HLIF’s holdings up to 33% to earn extra income. If you want to learn more about that strategy, click here. 

The result is a current income yield of 7.43% as at February 16th, 2023. 

HLIF’s portfolio could potentially be attractive for investors expecting a recession in 2023. While every market is different, when fears of a recession rise sectors with stable demand and companies with large market shares can often perform better.  

Financials, energy and utilities—three recession-resistant sectors—are the three largest sectors in HLIF. That skew, as well as its overall focus on large-cap companies, makes HLIF an ETF to consider for investors who expect an economic downturn. 

Those seeking an even higher income yield could also consider the Harvest Canadian Equity Enhanced Income Leaders ETF (HLFE:TSX). That ETF invests directly in HLIF and adds a modest amount of leverage, approximately 25% of the ETF’s Net Asset Value. That leverage helps to generate a higher yield with a higher risk-return profile. You can learn about Harvest ETFs’ Enhanced Equity Income strategies here.

The case for Canadian equities inside a globally diversified portfolio looks strong. Dividend payers are already popular, and Canada’s leading companies enjoy significant market shares. By focusing on large companies and increasing overall yield with a covered call strategy, HLIF and HLFE offer Canadians exposure to the leaders of their domestic market plus high monthly cashflow.

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Disclaimer

For Information Purposes Only. Commissions, management fees and expenses all may be associated with investing in Harvest Exchange Traded Funds (managed by Harvest Portfolios Group Inc.). Please read the relevant prospectus before investing. The ETF is not guaranteed, its values changes frequently and past performance may not be repeated. This communication should not be considered as advice and/or a recommendation to purchase or sell the mentioned securities or used to engage in personal investment strategies. Tax, investment and all other decisions should be made with guidance from a qualified professional.

Certain statements in this communication are forward looking Forward-looking statements (“FLS”) are statements that are predictive in nature, depend upon or refer to future events or conditions, or that include words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “intend,” “plan,” “believe,” or “estimate,” or other similar expressions. Statements that look forward in time or include anything other than historical information are subject to risks and uncertainties, and actual results, actions or events could differ materially from those set forth in the FLS.FLS are not guarantees of future performance and are by their nature based on numerous assumptions, which include, amongst other things, that (i) the Fund can attract and maintain investors and have sufficient capital under management to effect their investment strategies, (ii) the investment strategies will produce the results intended by the portfolio managers, and (iii) the markets will react and perform in a manner consistent with the investment strategies. Although the FLS contained herein are based upon what the portfolio manager believe to be reasonable assumptions, the portfolio manager cannot assure that actual results will be consistent with these FLS. Unless required by applicable law, Harvest Portfolios Group Inc. does not undertake, and specifically disclaim, any intention or obligation to update or revise any FLS, whether as a result of new information, future events or otherwise.