Jonathan Chevreau: Why dividend funds are a smart financial move

ETFs are a mainstream and low-risk option for investors looking for a simple investment solution.

In the search for tax-efficient yield, individual dividend-paying stocks and exchange-traded funds holding baskets of these make more sense than ever in this seemingly perpetual low-interest world.

Investors can pick GICs or interest-only instruments that barely yield one or two per cent, and they\’re going to be taxed at the very top marginal rate if they are held outside registered plans. Or they can get more than twice that payout by holding dividends, using the added bonus of favourable tax treatment for Canadian issues.

Many individual stocks in addition to ETFs yield more than four percent per annum. For example, the iShares S&P/TSX Composite High Dividend ETF (XEI/TSX) currently pays 4.64 percent and the BMO Canadian Dividend ETF (ZDV/TSX) pays 4.3 percent.