hey guys it's adrian here the canadian in a t-shirt and today i'll be breaking down the
best u.s etfs for dividends these are american etfs that pay a generous dividend that you can
hold onto for life and collect that easy passive income every three months plus they give you a
well-diversified exposure to the us stock market and long-term capital gains these etfs are great
options for any investor especially beginners in this video i'm only going to be talking about etfs
in u.s dollars that contain u.s companies so for canadians you'll want to hold these u.s etfs in
your rrsp account to avoid paying withholding taxes on these dividends and to maximize your
tax sheltered growth for this video i'm going to assume that you already know what an etf
is what a management fee or MER is and the basics of dividends drips and capital gains if you need
a refresher check out my previous videos in my millennial investing guide and then come
back to this video basically an etf is a way to buy hundreds of stocks within a single fund so
instead of putting all your eggs in one basket by investing in one company you're diversifying
your portfolio by investing in a little piece of hundreds of companies all at once and you collect
profits through dividends from each of these companies so without further ado let's jump into
the best us etfs for dividends let's start with spyd spyd is the SPDR S&P 500 high dividend etf
this etf tracks the highest dividends within the S&P 500 which are the 500 largest companies in
the united states but a lot of these are tech companies like amazon or facebook which don't
even pay a dividend so out of these 500 largest companies spyd takes a subset of the 80 stocks
with the highest dividend yield these 80 dividend stocks are still among the largest and most
established companies in the world but they also pay a great dividend which is passed on to the etf
and so spyd is able to pay out a generous dividend yield of 4.8 percent paid out every quarter not
only is this a great dividend but it also comes with great diversification and very low management
fees this etf is passively managed since it only needs to track the S&P 500 and take the top 80
dividends out of that you don't need an active manager making daily decisions and so spyd is very
cheap with an mer of only 0.07 percent that means if you have a thousand dollars invested in spyd
you'll only be paying 70 cents every year in fees that's practically nothing and far less
than you would pay with a mutual fund remember with etfs you'll never see this management fee
taken out as a transaction this fee is built into the price of the share of the etf another way to
consider the effect of this management fee is to subtract it away from the dividend yield so if
our dividend yield is 4.8 percent but we pay 0.07 in management fees our net income is 4.73 percent
every year of course this doesn't include capital gains as the value of the etf grows this is just
the income we gain every year through dividends with such a high dividend yield and a low share
price it's very easy to qualify for a drip with spyd remember a drip allows you to reinvest your
dividend and use it to buy more shares of a company rather than receiving cash and the
best part is you don't pay any commission at all when you use a drip to buy yourself extra shares
this is the best way to invest in the long term allowing your dividends to compound automatically
giving you true exponential growth this is incredibly useful when buying stocks but if you're
using questrade which is my favorite online broker you don't pay commission fees when you buy
etfs anyway so a drip won't save you any money but it does automate the compounding growth of your
etf rather than having to manually buy yourself an extra share every time you receive a dividend so
if you'd like to sign up with questrade click my referral link in the box below and you'll receive
$50 in commission free trade rebates plus i'll get a small referral bonus as well so back to spyd
with a dividend yield of 4.8 percent and a share price of $38.80 you'll only need about $3300 to
qualify for a drip remember all of these numbers are in us dollars let's go through the math with
$3300 invested that 4.8% dividend yield will give you $158 a year in dividends or $39.50 every quarter
the share price of sbyd is only $38.80 and so your dividend is enough to automatically buy
yourself an extra share and then you'll receive the remaining 70 cents as cash so that covers the
dividend and the mer but we also want to consider the holdings of this etf all the holdings of spyd
are among the largest 500 companies in the u.s so we have well-known staples like hp
seagate Hanes Kraft heinz walgreens and pfizer all 80 of these companies pay out a great dividend
and this etf is equally weighted among these 80 companies so each holding in this etf only has a
weight of 1.2 to 1.4 percent so it's not dominated by one or two companies which you'll see in a lot
of etfs this allows the etf to be well diversified across multiple industries looking at the industry
breakdown you can see that most of these companies are in financials real estate energy and utilities
tech and healthcare are not a big part of this etf but they will show up on the other funds on this
list looking at the share price over the past five years you can see a gradual but overall upward
trend with some noticeable drops but after every drop it's always able to recover even after the
massive crash in march of 2020 and if you were lucky you would have been able to buy this etf
at a massive discount this past year remember the focus of this etf is passive income through large
dividends so we don't expect too much capital appreciation we just want to sit back and collect
those dividends every three months any capital gains we get is just a bonus this is important
whenever i'm talking about dividend yields in this video i'm talking about the trailing 12 months or
ttm yield so for spyd it has a ttm yield of 4.8% that means that if you add up all the dividends
over the past 12 months and divided by the current share price you'd get 4.8% so this is the annual
dividend yield that you would expect year after year but many etfs like spyd don't pay consistent
dividends every quarter each stock within the etf can change the timing of their dividends
or the amount of their dividends plus the stocks themselves which make up the etf can change and
that's why the dividend amount that you receive from these etfs can vary between quarters but
we care more about the total annual dividend which is why we use ttm for etfs like this
the alternative is to use the forward yield but it doesn't work well for inconsistent dividends for
example the most recent dividend of spyd was 0.636 dollars per share back in march using a forward
yield we would annualize this by multiplying by four since there are four quarters in a year and
then we divide by the share price of $38.80 this would give us a forward yield of 6.5 percent
which sounds awesome it's way higher than the ttm yield of 4.8 percent but it's less reliable this
6.5% estimated dividend would only actually happen if spyd maintain that high dividend every quarter
but we know that these dividends aren't consistent so we should use the trailing 12 months instead
also since the dividends are inconsistent it's harder to predict the drip amount but you should
use the ttm in your calculations just to be safer the other etfs on this list have much more
consistent dividends so you can use either the ttm or the forward yield and number two we have a very
different etf called DGRO DGRO is the ishares core dividend growth etf unlike spyd which looks
for high yields degrow cares about dividend growth the holdings of this etf don't have to pay high
yields but they must have sustainable and growing dividends in fact all the stocks with indiegrow
must have increased their dividends every single year for at least five years in a row degrow
contains 391 of these quality dividend stocks giving it great exposure across the us market even
though a huge dividend yield isn't the priority this etf still has a respectable yield of 2.15 %
paid out every quarter filtering and selecting quality dividends takes a little bit more work
and so degrow has a slightly higher management fee with an mer of 0.08% but this is still super cheap
compared to a mutual fund which could charge you over two percent in fees so if you have a thousand
dollars invested in DGRO you'll only be paying 80 cents in fees every single year again this fee
is built into the share price but i like to take it off of the dividend income so with a dividend
yield of 2.15 percent minus an mer of 0.08% we have an annual net income of 2.07% that may not sound
too impressive but that allows for some fantastic growth potential but with a smaller dividend yield
it will be harder to qualify for a drip we'll need to invest $9125 let's check it out with a dividend
yield of 2.15 percent we'll get 196 dollars a year or $49 a quarter the current share price is $49
so that's enough to get us a free share every three months i know that nine thousand dollars
u.s is a lot of money but remember you don't need to reach the DRIP threshold all at once you can
slowly build up to this over the course of years and you'll earn great passive income and capital
gains along the way looking at the holdings of DGRO we have 391 companies with the biggest
players being microsoft apple verizon johnson & johnson jp morgan chase pfizer procter & gamble
home depot cisco intel and pepsi you'll notice that some of these pay high dividends like pfizer
and some of them pay low dividends like apple but all these companies are increasing their dividends
and that's the key this fund does a good job of diversifying across companies the top holdings
only have a weight of two to three percent each so it's not being dominated by one or two companies
looking at the industry breakdown we still see good diversification but quite different exposure
compared to spyd this fund focuses on technology financials care industrials and consumer staples
you'll notice that technology and healthcare were barely a part of spyd but with DGRO
they're two of the biggest sectors that's why it's important to diversify and own multiple etfs to
ensure that you have all the bases covered looking at the share price over the past five years you
can see a very consistent upward climb with only a few drops but after every drop it recovered
very quickly including the big market crash of 2020. that's because this fund focuses on secure
companies that have a history of growth so with DGRO you can expect reliable long-term capital
gains as well as passive income along the way at number three we have schd schd is the schwab
u.s dividend equity etf which tracks the dow jones u.s dividend 100 index this etf tracks 104 quality
and sustainable dividend stocks all the stocks in this etf must have paid consistent dividends
for at least 10 years in a row the dividends don't have to be increasing like with DGRO
but the stocks can't miss any dividend payments a SCHD is the mix between the previous two etfs it's
definitely more selective than spyd but it has a higher yield than degrow schd pays out a generous
dividend of 2.9 percent paid out every quarter schd also offers super low management fees with an
mer of only 0.06 percent so if you had a thousand dollars invested you'd only be paying 60 cents
every year in fees with a dividend yield of 2.9% and an mer of 0.06% we're looking at a net income
of 2.84% every year to qualify for a drip we'll need about $10200 invested in schd with a yield
of 2.9 percent that gives us 295 a year in dividends or 73.95 every quarter with a share
price of 73.90 that's enough to earn ourselves a free share every quarter looking at the holdings
of schd you'll recognize some of the largest and most established us companies including home
depot coca-cola texas instruments pepsi cisco pfizer ibm and 3m these are some of the best
dividend stocks out there looking at the industry breakdown again we see solid diversification with
extra weight on financials industrials consumer staples and technology looking at the share price
over the past five years again it's somewhere in between the previous two etfs we still have an
overall upward trend but we have a little bit more volatility like we did with spyd and just like the
other two schd has recovered quite nicely since the crash in 2020. with this etf you can expect
solid long-term capital appreciation with reliable and consistent dividends every three months
for all these etfs make sure you hold them in your tax sheltered accounts to avoid paying taxes on
the dividends and capital gains in canada you'll want to hold them in your rrsp account to avoid
all taxes if you hold them in your tfsa sure you won't pay any taxes on the capital gains and you
won't pay any canadian taxes on the dividends but you will be charged a 15% u.s withholding
tax on these dividends this withholding tax on u.s dividends can only be avoided in your rrsp
make sure you check out my rrsp videos to see how this all works if you're not sure how to actually
buy these etfs click the pop-up at the top right to watch my Questrade tutorial where i give a
step-by-step walkthrough on how to buy u.s stocks and etfs as a canadian you're buying us etfs and
so you'll need to buy them in u.s dollars and if you're investing more than fifteen hundred dollars
at once i suggest using norbert's gambit to avoid currency conversion fees you can use norbert's
gambit to convert canadian dollars into us dollars or vice versa without paying any conversion fees
this technique can save you hundreds or thousands of dollars so check out my step-by-step guide on
how to do it Questrade is the best broker in canada for buying us investments and if you're
buying etfs you won't pay any commission fees and that will save you a ton of money in the long run
so if you'd like to get started with Questrade click my referral link in the box below and you'll
get $50 in commission free trade rebates for the first 30 days when you sign up that means that
your first 10 stock trades will be commission free that saves you $50 plus i'll get a small referral
bonus as well so there you have it those are my favorite us etfs for dividend income spyd has
the highest yield and tracks 80 of the largest u.s dividend stocks DGRO has a smaller yield
but focuses more on dividend growth and capital gains and schd is a middle ground focusing on
sustainable dividends that still pay a high yield you'll want to own all three of these etfs to gain
exposure of the entire u.s market and hold on to them for life to collect that consistent passive
income thanks for watching guys and be sure to like comment and subscribe if you found this
video helpful every thumbs up and comment really does help me build this channel on youtube and hit
that bell icon to be notified of my new videos and if you'd like to follow me on instagram or
facebook @CanadianTShirt click the links in the box below or click the links on my homepage
thanks everyone and i'll see you guys on the next episode of the canadian in a t-shirt bye guys