Harvest Portfolios Group
Harvest Portfolios Group

An ETF for Dividends & Covered Calls holding Large Canadian Companies | HLIF

January 31, 2023
An ETF for Dividends & Covered Calls holding Large Canadian Companies | HLIF

By Harvest ETFs

Dividends might just be a key factor explaining some of Canadian investors’ “domestic bias.” As is often proclaimed by op-eds and factsheets, 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.

While our domestic bias is likely due to a range of factors, from market share to tax and currency considerations to personal familiarity, it’s worthwhile to note that some of Canada’s largest and most well-known companies tend to pay high dividends.

That is reflected in the overall returns of the S&P/TSX 60. Taking a 5-year time horizon on the index from January of 2018, 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.

Granted, ending a 5-year comparison at the end of 2021 comparing the US benchmarks to Canada would yield a staggering outperformance south of the border. Moving that calendar forward a year, however, highlights the case for quality Canada. Even without dividends Canadian equities broadly outperformed the S&P 500 over the past year. In 2022, the S&P 500 was down 19.4% in price return, according to Bloomberg. The TSX 60 was down 9.2%. While both indices ended the year down, Canadian stocks’ overweight towards energy, utilities, large-cap financials, and consumer staples helped the TSX outperform. Add on top of that the meaningful dividend pickup and the relative returns are nearly 12% in favour—spelled with a u—of Canada.

The case for Canada, therefore, seems relatively strong. Large-cap companies with dividend track records, 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 generate income and create the opportunity for returns from a portfolio of large-cap Canadian dividend payers. It holds 30 Canadian companies, screened by market cap and dividend payments. 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.

The ETF holdings’ already high dividend yields are amplified further by the application of Harvest ETFs’ active & flexible covered call options strategy. The ETFs’ portfolio managers sell call options on a flexible percentage of HLIF’s holdings, with a maximum limit of 33%, trading off some market upside opportunity for a higher annualized yield and the ability to monetize market volatility. The result is an income yield of 7.43% as at January 20th, 2023.

HLIF’s ability to monetize volatility, as well as its portfolio makeup, could also 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 tend to show defensive characteristics. HLIF’s tilt towards Financials, Energy and Utilities—the three largest subsectors in the ETF—and its focus on large-cap companies makes it 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 applies a roughly 25% leverage component to generate a higher yield. 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.

HLIF - Harvest Canadian Equity Income Leaders ETF | Steady Income from Canadian Leaders

Canadian Equity Income
Leaders ETF

What’s New
Sign up to receive our monthly updates
HHL Harvest Healthcare Leaders Income ETF
HBF Harvest Brand Leaders Plus Income ETF
HTA Harvest Tech Achievers Growth & Income ETF
HUTL Harvest Equal Weight Global Utilities Income ETF
HGR Harvest Global REIT Leaders Income ETF
HPF Harvest Energy Leaders Plus Income ETF
HUBL Harvest US Bank Leaders Income ETF
HLIF Harvest Canadian Equity Income Leaders ETF
TRVI Harvest Travel & Leisure Income ETF
HRIF Harvest Diversified Equity Income ETF
HPYT Harvest Premium Yield Treasury ETF
HHLE Harvest Healthcare Leaders Enhanced Income ETF
HBFE Harvest Brand Leaders Enhanced Income ETF
HTAE Harvest Tech Achievers Enhanced Income ETF
HUTE Harvest Equal Weight Global Utilities Enhanced Income ETF
HLFE Harvest Canadian Equity Enhanced Income Leaders ETF
HDIF Harvest Diversified Monthly Income ETF
HGGG Harvest Global Gold Giants Index ETF
HBLK Blockchain Technologies ETF
TRVL Harvest Travel & Leisure Index ETF
HCLN Harvest Clean Energy ETF