Why people prefer VRE instead of HHL.B with higher dividend yield

Question

Good day , I am new to stock market , so I am sorry in advance for my poor knowledge. My Canadian financial advisor told me that secure way to get dividends from stocks is to buy dividend ETFs primarily VRE(Vanguard FTSE Canadian Capped REIT Index ETF) with yield 2.9% with price 36.47$ . After some research I figured that many people (Fool, Yahoo Finance and Youtube channels) recommend this ETF stock as well. However, I recently found anouther ETF HHL.B(Harvest Healthcare Leaders Income ETF Unhedged) with yield 8.3% and price 8.33$. However, I am surprised that not many people are buying this stock despite of it yield.

Let's say I want to invest 1000$. If I buy HHL.B then it will be around 120 shares with annual dividend 0.7 my income will be 84(minus 6 dollars from ETF fees) In contrast , with VRE I can only purchase 27 shares and with annual dividend 1.06 my income will be 28$ ( minus 3 dollars fees).

So if my math correct , I should invest in HHL.B instead to get higher cash profit per year, is there any reason why people prefer VRE if there are ETF with higher yields in the market ? Thanks

Answer 1

If I buy ... my income will be ...

A very important rule is past performance is not an indication of future returns. The yields you mention are historical, based off of past pricing and dividends. There is no guarantee that future dividends will be equivalent, or even close to equivalent.

I am surprise that not many people are buying this

If it has a price listed, then people are buying (and selling) it. The listed price on the exchange is just the most recent available transaction price, which means that somebody sold it at the price to somebody who bought it at that price. In this case, those people just aren't shouting about their purchase in venues where you would hear about it (Fool, Yahoo Finance, and Youtube channels).

These two securities you've mentioned (based on name alone, I haven't done further research) are very different things; one invests in real estate, and the other invests in healthcare. They are also operated by different management companies. They likely have different expenses (perhaps significantly).

To get a better understanding of ETFs (and the stock market in general), I strongly recommend https://jlcollinsnh.com/stock-series/.

---

As for your two questions:

1. Why do people prefer VRE over HHLB? Some people prefer investing in real estate over investing in healthcare. Some people prefer Vanguard over other companies. Perhaps the fees are very different.
2. Should you invest in this particular security? Such questions are off-topic for this site.

Answer 2

First, dividend yield is a measure of what an ETF paid in dividends in the past. You are not guaranteed to get the same dividend yield going forward. If the companies within the ETF pay less dividends, then so will the ETF.

Second, dividends are not income. It is "cashing out" a portion of your holdings. The value of the ETF goes down by the same amount when it pays a dividend. To actually gain value, you need price appreciation. So a higher dividend yield alone does not make another ETF a better investment.

Third, the two ETFS you compare are in unrelated sectors - one is in real estate and one is in healthcare. So your broker may be recommending an ETF based on the sector more than the dividend.

Finally, for ETFs, price is largely irrelevant. There is no benefit in buying more "shares" of an ETF. If you invest $1,000 in an ETF with a price of 100, and it goes up 5%, you make the same amount as if you invested it in an ETF with a price of 10 and it went up 5%. The relative change is what's important, and that makes the absolute price irrelevant.