For beginner investors in Canada, exchange-traded funds (ETFs) have been a big hit. These offer an easy and affordable way to diversify. In fact, a recent report showed that Canadian ETFs brought in over $55 billion in 2021 alone, a sign of their growing popularity. These funds generally have lower fees and spread your investment across many stocks or bonds, reducing risk. Meanwhile, on average, these ETFs can bring in an average return of 7%. That makes them great for newbies testing the waters! So, let’s get into two of the best for the remainder of 2024.
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VCN
Vanguard FTSE Canada All Cap Index ETF (TSX:VCN) is an excellent choice for long-term passive income, particularly for investors looking to gain broad exposure to the Canadian market. This ETF covers a wide range of companies, from large to small caps, which gives it a well-diversified portfolio. It’s highly affordable, too, with an expense ratio of just 0.05%. Thus making it a low-cost way to track Canada’s overall market performance. Over the past year, VCN has shown impressive momentum, delivering a year-to-date return of 15% as of September 2024. Its yield of 2.77% at writing adds to its attractiveness for those seeking steady income streams.
VCN’s 52-week range of $38.05 to $48.36 suggests that it has experienced strong growth while maintaining a low price-to-earnings (P/E) ratio of 14.22. This indicates good value for long-term investors. The ETF’s beta of one also shows it moves in line with the broader market, making it a balanced choice for those seeking moderate risk. Given its robust fundamentals and strong historical returns, averaging around 8.85% annually since inception, VCN is perfect for a set-and-forget investment strategy. As Vanguard highlights, “ETFs like VCN provide a low-cost, diversified approach to investing in a variety of sectors,” thus making it a solid pick for those aiming to grow passive income over time.
HDIV
Hamilton Enhanced Multi-Sector Covered Call ETF (TSX:HDIV) is a standout option for long-term passive income, especially for investors seeking high yields. This ETF offers a compelling annual yield of 12.08% at writing, paid out in monthly distributions. Thus making it a solid choice for those prioritizing regular income. HDIV uses a covered call strategy to boost returns, investing in a diversified portfolio across sectors like financials, technology, and energy. The fund’s leverage of 25% helps enhance both growth and yield, which has resulted in a year-to-date return of 15.78% as of writing.
For those focused on steady income streams, HDIV’s monthly payouts have remained consistent at $0.171 CAD per share recently, which is particularly appealing in today’s fluctuating market. The fund also boasts a total return of over 24% in the last year, demonstrating strong performance momentum. As Hamilton ETFs explains, “HDIV has consistently outperformed the S&P/TSX 60, with a higher yield and solid diversification.” This makes HDIV an excellent fit for income-focused investors looking for high monthly dividends and robust performance
Bottom line
Both the VCN and HDIV ETFs offer excellent opportunities for long-term passive income but cater to different investor needs. VCN provides broad exposure to the Canadian market with steady growth, a reasonable 2.77% yield, and a diversified portfolio across sectors, making it ideal for those seeking a balance of growth and income. On the other hand, HDIV is a powerhouse for high monthly payouts, boasting a hefty 12.08% yield and leveraging covered calls to enhance returns. Whether you’re in it for the slow, steady gains or the high-yield monthly income, both ETFs offer compelling reasons to buy and hold.
