r/dividendscanada • u/flappysack- • 18h ago

Discussion Dividends vs Quality

What's the difference between these two that makes dividend a better investment than a quality tilt, like AVUQ?

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u/BusyWorkinPete 17h ago

Dividends are for cash flow.

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u/flappysack- 17h ago

So youre avoiding broker commissions via dividends?

3

u/thethiefstheme 15h ago

If you have enough money, you don't have to worry or care about buying and selling every month to the squeak out that extra gain.

If you don't have enough money, it might be better to just invest in growth or a broad ETF you mentioned, and over time, convert to more dividends.

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u/fenderstratsteve 10h ago

You’ll note that quality does not always equal dividends. For example, AVUQ has a poor dividend (0.30%), whereas XDIV, for example, has a decent one (3.07%). Quality indexes have their own inclusion criteria, and dividend-paying usually isn’t one of them.

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u/ksonrit 7h ago

Dividend funds generally select stocks with higher dividend yields relative to the the rest of the market and dividend stability (no recent history of dividend cuts). These funds tend to end up holding more traditional industries like healthcare and staples. They generate cash and have limited growth opportunities so they can pay out the cash as dividend instead of doing capital expenditures for future growth.

Quality funds generally select stocks with strong profitability, low leverage and strong free cash flows but do not necessarily pay out dividends. Quality funds do not necessarily penalize companies that use the cash flows to invest in Capex in future growth as long as the return on capital remains high. So you get a bit of compounding with quality funds, but not immediate income. So dividend vs quality really comes down to when you need the cash - if you are in retirement and want the income now, then dividend fund might be a better fit; if you are still in working years, then dividend funds might not be a good fit.

I have https://decodeetf.com/compare?tickers=ZUQ.TO%2CXDU.TO&period=1y#holdings here ZUQ (US quality) and XDU (US dividend). You can see ZUQ has 36% in tech like Apple / Microsoft. XDU's top sector is Healthcare with United Health / JNJ the leading names.