ESG Dividend Model Portfolio: Align Values with Long-Term Goals
Today, there’s frequently a demand for investment strategies that align with an investor’s values, financial goals, and risk tolerance. As Environmental, Social, and Governance (ESG) considerations become more prominent, so does the idea of blending these considerations with historically lucrative dividend strategies. This is what our model portfolio achieves. In this post, we’ll unpack the criteria for selecting this portfolio and compare it to other available indexing approaches.
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What are Dividend Aristocrats?
Dividend aristocrats are companies renowned for their consistent and reliable dividend payments over an extended period. These companies are considered stable and financially robust, often outperforming broader market indices in terms of dividend yield and reliability. Investors favor dividend aristocrats for their ability to provide steady income streams and demonstrate strong corporate governance and financial health, aligning well with long-term investment strategies such as buy-and-hold approaches highlighted in the article.
Our Investing Philosophy
We choose investments based on their ability to provide consistently high returns over the long-run. Our investment philosophy takes inspiration from buy-and-hold investors such as Warren Buffett and Stephen Jarislowsky. We believe the benefits from productivity gains that result in economic growth accrue to equity owners. Therefore, investors should focus on owning businesses and investing in stocks. The riskiness of a concentrated portfolio of a private business or a portfolio of stocks is of no consequence to an investor who plans on never selling. In fact, this risk premium may also support the idea of an enhanced return (as it drives away investors less willing to accept such risk).
There are three distinct reasons why our investment philosophy provides superior returns:
- reduces fees & expenses
- reduces investing bias
- reduces taxes
Before you begin investing, make sure you have developed a strategy! Try out our free investment policy generator for a more personalized investing strategy!
Model Portfolio Screening Criteria
Our criteria for stock selection guarantees a blend of strong corporate governance, environmental sustainability, and a consistent history of dividend payment. Here’s the breakdown of our screening criteria:
- Governance: Exclude any companies with multiple share classes.
- Sector: Real estate companies are excluded.
- Sustainability: We’ve kept away from companies involved in controversial sectors including adult entertainment, alcohol, firearms, weapons, for-profit prisons, fossil fuels, gambling, GMOs, palm oil, predatory lending, tobacco, and mining.
- Dividend Aristocrats: Companies in Canada should have at least 5 years of consistent dividend increases. For the USA, it’s at least 25 years.
Additionally, it’s crucial to note that this is a buy-and-hold investment strategy. The portfolio was crafted using the iShares S&P/TSX Canadian Dividend Aristocrats Index ETF and the iShares ESG Advanced MSCI Canada Index ETF for Canadian stocks, and the S&P 500 Dividend Aristocrats ETF and the iShares ESG Advanced MSCI USA ETF for the U.S. stocks. The stocks in our model portfolio were identified by cross-referencing the holdings of these ETFs. This means our selected stocks are both consistent dividend payers and meet our ESG screening criteria.
Investors who don’t care about ESG criteria should consider index funds that track the S&P 500 or the S&P/TSX 60. Investors with ESG considerations without the desire for enhanced incomes should consider the MSCI Advanced Index ETFs.
US ESG Dividend Aristocrat Portfolio
| Symbol | Name | Dividend Yield |
| CAT | Caterpillar Inc. | 1.83% |
| PNR | Pentair PLC | 1.24% |
| AFL | AFLAC Incorporated | 2.22% |
| WST | West Pharmaceutical Services Inc. | 0.19% |
| ADP | Automatic Data Processing Inc | 2.00% |
| SHW | Sherwin-Williams Co | 0.89% |
| SWK | Stanley Black & Decker Inc | 3.45% |
| NDSN | Nordson Corp | 1.12% |
| CB | Chubb Ltd | 1.71% |
| CHRW | CH Robinson Worldwide Inc | 2.55% |
| LIN | LINDE ORD | 1.15% |
| ROP | Roper Technologies Inc | 0.56% |
| HRL | Hormel Foods Corp | 2.68% |
| GPC | Genuine Parts Co | 2.41% |
| CLX | Clorox Co | 2.97% |
| PPG | PPG Industries, Inc. | 1.88% |
| ITW | Illinois Tool Works Inc. | 2.33% |
| AOS | A O Smith Corp | 1.67% |
| TGT | Target Corp | 3.36% |
| MKC | McCormick & Company Inc | 1.81% |
| KMB | Kimberly-Clark Corp | 3.69% |
| GWW | WW Grainger Inc | 1.05% |
| LOW | Lowe’s Companies Inc | 1.98% |
| APD | Air Products & Chemicals, Inc. | 2.44% |
| CTAS | Cintas Corporation | 1.10% |
| SJM | J M Smucker Co | 2.88% |
| EXPD | Expeditors International of Washington Inc | 1.19% |
| BEN | Franklin Resources Inc | 4.32% |
| TROW | T Rowe Price Group Inc | 4.34% |
| DOV | Dover Corp | 1.43% |
| SPGI | S&P Global Inc | 0.93% |
Canadian ESG Dividend Aristocrat Portfolio
| Symbol | Name | Dividend Yield |
| TSE:TD | Toronto-Dominion Bank | 4.46% |
| TSE:RY | Royal Bank of Canada | 4.23% |
| TSE:BMO | Bank of Montreal | 4.98% |
| TSE:BNS | Bank of Nova Scotia | 6.60% |
| TSE:CM | Canadian Imperial Bank of Commerce | 6.21% |
| TSE:NTR | Nutrien Ltd | 3.16% |
| TSE:SLF | Sun Life Financial Inc | 4.42% |
| TSE:IFC | Intact Financial Corporation | 2.20% |
| TSE:NA | National Bank of Canada | 3.97% |
| TSE:TRI | Thomson Reuters Corp | 1.54% |
| TSE:WPM | Wheaton Precious Metals Corp | 1.37% |
| TSE:DOL | Dollarama Inc | 0.33% |
| TSE:MG | Magna International Inc | 3.10% |
| TSE:H | Hydro One Ltd | 3.28% |
| TSE:GWO | Great-West Lifeco Inc | 5.25% |
| TSE:T | Telus Corp | 6.33% |
| TSE:STN | Stantec Inc | 0.86% |
| TSE:WN | George Weston Ltd | 1.82% |
| TSE:TIH | Toromont Industries Ltd | 1.52% |
| TSE:IAG | iA Financial Corporation Inc | 3.44% |
| TSE:OTEX | Open Text Corp | 2.70% |
| TSE:FTT | Finning International Inc | 2.19% |
| TSE:EQB | EQB Inc | 1.81% |
| TSE:X | TMX Group Ltd | 2.38% |
| TSE:SJ | Stella-Jones Inc | 1.38% |
| TSE:WFG | West Fraser Timber Co. Ltd. | 1.52% |
| TSE:SAP | Saputo Inc | 2.59% |
| TSE:MRU | Metro Inc | 1.73% |
| TSE:L | Loblaw Companies Ltd | 1.50% |
| TSE:PBH | Premium Brands Holdings Corp | 2.78% |
| TSE:MFI | Maple Leaf Foods Inc | 2.74% |
| TSE:BCE | BCE Inc | 6.88% |
| TSE:CWB | Canadian Western Bank | 4.99% |
| TSE:ENGH | Enghouse Systems Ltd | 3.15% |
| TSE:BDGI | Badger Infrastructure Solutions Ltd | 2.02% |
| TSE:JWEL | Jamieson Wellness Inc | 2.87% |
Comparison Approaches: Dividends, Fees, Taxes, and Donations:
| Dividend Yield | Management Fees | |
| US Model Portfolio | 2.00% | 0.00% |
| US Dividend Aristocrats | 2.00% | 0.35% |
| US ESG Portfolio | 1.15% | 0.10% |
| Canadian Model Portfolio | 3.00% | 0.00% |
| Canadian Dividend Aristocrats | 3.90% | 0.66% |
| Canadian ESG Portfolio | 3.00% | 0.17% |
- Dividends: The current dividend yield of the S&P 500 Index stands at 1.54%. The low yield is attributed to tech giants like Apple, Microsoft, and Amazon either paying low dividends or none at all. Excluding such companies can enhance the portfolio’s dividend yield but also affects its growth profile. Our Canadian model portfolio, for instance, offers a yield of 3%, while the Canadian dividend aristocrats index gives 3.91% and the ESG index offers 3%. For the U.S., our model yields 2%, same as the aristocrat’s index, but higher than the ESG index’s 1.15%.
- Fees: Creating a personalized passive portfolio eliminates the fees associated with ETFs. Therefore, our model portfolio doesn’t have any associated investment management costs.
- Taxes: Taxes often overlooked, play a significant role in returns. Buy-and-hold strategies, like our model portfolio, involve buying and never selling. This means no capital gains taxes unless there’s a buy-out. In contrast, with ETFs, changes in holdings can lead to realized capital gains or losses, which might be less tax-efficient.
- Donations: Holding individual stocks offers another advantage when it comes to charitable donations. Donating appreciated securities can be more tax-efficient than donating cash. With individual holdings, investors can select securities with the most significant capital gains for donation, maximizing tax benefits.
Key Considerations for Investors
For the value-driven investor who is also keen on steady dividends, our model portfolio offers a carefully curated blend of stocks that meet both ESG criteria and consistent dividend payouts. Our buy-and-hold philosophy, when compared to other methods, proves to be cost-efficient, more tax-efficient, and more flexible, especially when it comes to charitable giving. While an investment advisor can offer personal guidance, the clarity and intent behind this portfolio make it a compelling choice for those looking to align their investments with their values.
We invite you to contact us, or schedule a complimentary review of your situation, to explore how we can assist you in navigating the investment landscape with confidence and clarity.
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