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It hardly comes as a surprise that many advisors use those yields as a strategy, touting the tax-efficient income from owning a highly concentrated portfolio of Canadian dividend stocks when designing portfolios for their clients. Often, advisors will tell investors not to worry about near-term fluctuations and overall volatility as long as these dividends keep getting paid.

While we can appreciate the attractiveness of such a tactic especially with interest rates being so low and tax rates being so high, we think both advisors and investors are missing something rather important — that it’s the total performance that ultimately matters, not just yield.

For example, let’s take a look at the financials sector in Canada and the U.S. as represented by the iShares S&P/TSX Capped Financials Index ETF (XFN) and iShares U.S. Financials ETF (IYF). Despite having a dividend yield of approximately three per cent that is nearly double that of the IYF’s 1.7 per cent, Canadian financials have significantly underperformed their U.S. peers when factoring in share-price appreciation.

In total, we calculate Canadian financials have underperformed by an annualized 2.2, 5.4, 2.6 and 1.9 per cent over the past one, three, five and 10-year periods despite having a similar standard deviation. This is quite significant if you think about it but it does make some sense as there are plenty of benefits to looking south of the border.