The popularity of exchange-traded funds has made it so even the novice investor can get single-click exposure to the broader markets for a fraction of the cost of a traditional mutual fund.
And although broad exposure to the markets is excellent, investors looking for income may not find broad-based index funds to be the solution. To get the income they desire, they'll need to seek out some of the best Canadian dividend ETFs today.
These are more "niche" options for those looking to increase their passive income in retirement. They aim to invest in Canadian dividend stocks, particularly those with a high yield. Most will provide modest, long-term capital growth and sacrifice overall returns to target high income.
Are Canadian dividend ETFs worth the investment?
Considering most of these Canadian dividend ETFs will contain blue-chip companies with a long history of reliable dividend payments, they can be seen as solid long-term investments.
For some, the fact that some of these ETFs issue monthly dividend income is also a huge bonus, as most stocks pay dividends every quarter.
However, it is essential to note that we are paying for convenience. Fees erode investment returns over time. This is an undeniable fact in both ETFs and mutual funds. You need to figure out whether or not the expenses are worth the cost of convenience.
In this article, I'll go over some of the best dividend ETFs in the country, including their past results and management fees, current holdings and much more. I'll include as many different fund operators as possible, as there is a wide variety of options here in Canada, including Bank of Montreal, Vanguard, Horizons, and iShares.
Remember, this list is in no particular order either, as each Canadian ETF on this list provides a unique approach to income investing.
However, there will be some criteria that need to be met. I will avoid listing strategy-type funds like covered call ETFs, and I will stick to funds with over $100M in assets under management at the time of writing.
A warning about these dividend ETFs
Canadian dividend ETFs are hyper-concentrated in a few select stock market sectors. This is because most of our dividends here in Canada come from industries like banking, oil and gas, and basic materials.
As such, I feel these ETFs are more suited as complementary holdings in a more diverse portfolio. Holding large allocations to these funds could increase your overall risks regarding sector allocations.
Ultimately, the decision is up to you. I just wanted to bring this up before I started.
What are the best Dividend ETFs in Canada?
- iShares Canadian Financial Monthly Income ETF (FIE)
- iShares TSX 60 Index ETF (XIU)
- iShares Canadian Dividend Aristocrat ETF (CDZ)
- iShares Core MSCI Quality Dividend Index ETF (XDIV)
- BMO Canadian Dividend ETF (ZDV)
- Vanguard Canadian High Dividend Yield ETF (VDY)
- iShares Canadian Select Dividend ETF (XDV)
- iShares S&P/TSX High Dividend Index ETF (XEI)
- Horizons Active Canadian Dividend ETF (HAL)
- Invesco Canadian Dividend ETF (PDC)
iShares Canadian Financial Monthly Income ETF (TSE:FIE)
iShares Canadian Financial Monthly Income ETF (TSE:FIE) provides a unique product for Canadian dividend seekers, focusing on the Canadian banking sector and some insurers and asset managers. But it's essential to remember that this fund is not 100% equities. Nearly one-third of it is made up of preferred shares and bonds.
This does a couple of things. For one, it reduces overall volatility. These assets are often less volatile than common stocks and can help prevent large drawdowns. And secondly, it helps boost the fund's yield, which currently sits in the mid-6 % range and pays out monthly.
Its top five holdings include a Canadian preferred share ETF, a Canadian corporate bond ETF, and 3 of Canada's major banks Royal Bank, TD Bank, and Bank of Montreal.
The fund aims to pay a set distribution monthly. Although it never guarantees that this distribution will be paid, it's been highly reliable.
Management fees come in around 0.91%, which means you'll pay $9.10 per $1000 invested. This is certainly on the more expensive side, especially considering this fund has a turnover ratio of only 31%, indicating a bit of active management, but not on the crazy side.
With nearly $940M in assets under management, this fund is very popular in Canada. It's because of the high-yielding passive income stream, along with the fact the preferred shares and bonds are suitable for those with lower risk tolerance.
Although seeking out high yields in the utility sector is easy, the financial industry doesn't have huge yielders like TC Energy, Canadian Utilities, or Pembina Pipeline. So, the preferred share mix of this ETF to increase the yield while exposing investors to the financial sector is likely very attractive to some.
iShares TSX 60 Index ETF (TSE:XIU)
The iShares S&P/TSX 60 Index ETF (TSE:XIU) has genuinely stood the test of time. Why? Well, it's the oldest ETF in existence. XIU started trading in 1990 and holds the 60 largest companies on the Toronto Stock Exchange.
So while this isn't necessarily a fund aiming towards a high-dividend strategy, it yields in the low 3% range simply because many companies in Canada, especially the larger ones with significant economic moats, pay substantial dividends.
Its largest holdings include Royal Bank of Canada, Toronto-Dominion Bank, Enbridge, Brookfield Asset Management, and Canadian National Railway. During the tech craze of 2020 and 2021, Shopify was the largest holding of this portfolio. It went through a large drawdown in 2022 before surging in price yet again in 2023 to sit as the third largest holding in this portfolio.
This is because this fund is market-cap-weighted, meaning the largest companies will be given the largest allocations. The top holdings in the fund will typically have a 4-7% allocation while the smaller holdings will have less than half a percent.
This is one of the country's largest and most liquid funds, with assets under management of just over $11B. And throughout its existence, it's done an admirable job of outperforming the TSX. This is likely because the TSX has a large amount of cyclical energy and material plays within it, and XIU aims to capture only the largest ones.
XIU's only downfall is that it's a little over-exposed to the financial sector. However, Canada's banks and insurers have proven time and time again they're reliable and well-capitalized.
The management expense ratio on the fund is one of the lowest on this list. You'll only pay $1.80 per $1000 invested to own XIU.
iShares Canadian Dividend Aristocrat ETF (TSE:CDZ)
Dividend growth investing is a widely utilized strategy by investors looking to grow a passive income stream into retirement. And with the iShares TSX Canadian Dividend Aristocrats Index ETF (TSE:CDZ), you gain exposure to over 94 companies that have consistently raised their dividend for five years or longer.
The fund has a distribution of around 3.5%, and assets under management are just under $1B, highlighting the popularity of this fund. It aims to track the S&P/TSX Canadian Dividend Aristocrats Index, which primarily invests in common stocks of Canadian companies that have grown dividends for 5+ consecutive years.
Regarding holdings, Fiera Capital, Aecon Group, Chartwell Retirement and Allied Properties are some of the largest. The fund is also exposed to the real estate sector, with REITs like CT REIT and SmartCentres REIT in the top 15 holdings.
The fund isn't equally weighted but well diversified, with its largest holding making up only 2.9% of the entire portfolio. This should make the fund less volatile. The largest exposure on an industry level is the financial sector, which comes in at around a quarter of the fund. This is one of the lowest allocations to the financial industry on this list of top dividend ETFs. The rest is well balanced, with no sector making up more than 15% of the fund.
Because this is a fund that tracks Canadian companies that have raised the dividend for five years or longer, naturally, you're going to see changes on a year-to-year basis. Companies that hit the 5-year mark will be added to the index, and ones that don't continue to raise the dividend will be eliminated. A prime example of this would be Suncor Energy, which was taken out after its 2020 dividend cut.
Fees are high on this one for it being a passively managed ETF. You'll pay $6.60 per $1000 invested. But, historically, it has outpaced the TSX, as typically, companies that have raised the dividend for 5+ consecutive years have strong fundamentals.
iShares Core MSCI Quality Dividend Index ETF (TSE:XDIV)
The iShares Quality Dividend Index (TSE:XDIV) aims to not only invest in high-yielding companies capable of growing their dividends over the long term, but it does so with the strength of the company's balance sheet and volatility around earnings in mind.
This index fund tracks the MSCI Canada High Dividend Yield 10% Security Capped Index. As you can tell by the title, the fund caps the weighting of individual securities at 10%.
This can deviate in some instances, especially when a company has a large run-up in price. So, you may see a holding inside of this fund that is greater than 10%, but it will be fixed upon rebalancing. Its top holdings at the time of writing contain Scotiabank and Royal Bank, Sunlife and Manulife Financial, and Toronto Dominion Bank.
The fund has double-digit weightings in the utility, energy, telecom, and basic material sector. Still, as you'll see with XDIV and many other Canadian dividend ETFs on this list, it is very heavy in financials. In fact, 51% of XDIV is financial companies at the time of writing.
The fund is relatively new, debuting in mid-2017. So in terms of results, we don't have much to go off. However, it has achieved high single-digit annualized gains over its short existence. Over that same timeframe, it's about the middle of the pack regarding returns compared to other funds on this list.
The main attraction to this ETF is its ultra-low MER. You will pay only $1.10 per $1000 invested, the lowest fee of all ten ETFs listed. And with a dividend yield in the mid-to-high 3% range, it's also attractive from an income standpoint.
BMO Canadian Dividend ETF (TSE:ZDV)
The first BMO fund on this list is the BMO Canadian Dividend ETF (TSE:ZDV). With assets under management of just under $1B and daily trading volume over 40,000 shares, this is a very popular ETF here in Canada.
BMO is making a name for itself in the ETF space, coming out with new products relatively consistently. However, ZDV has been around for a bit, debuting in late 2011. The fund yields around 4% and holds just over 50 companies.
The fund is yield weighted, meaning it will target higher-yielding companies and give them heavier allocations in the fund to increase the distribution ultimately. This is precisely why despite being one of the poorer-performing Canadian banks over the last half-decade, the Bank of Nova Scotia is one of the top holdings in the portfolio. Other notable high-yielders include Enbridge, BCE Inc, Canadian Imperial Bank of Commerce, Tc Energy, and Canadian Natural Resources.
Fees come in relatively low, at only $3.90 per $1000 invested and in terms of performance, because this fund doesn't have a benchmark, I typically look at it compared to the TSX 60 ETF XIU. And in this case, it has underperformed by low single digits annually over the last decade. Some of this is the higher fee, but the other factor is likely chasing yield over total return.
As the share price falls, the yield of the stock rises. So, with a yield-weighted portfolio, you could have struggling companies as top holdings. However, don't take this the wrong way. This fund is still full of outstanding companies, worthy of a look for those looking to increase their regular dividend income stream.
If you'd like more on the overall strategy of this fund or any other fund, read the prospectus.
Vanguard Canadian High Dividend Yield ETF (TSE:VDY)
Vanguard is the "blue chip" of exchange-traded funds. It is the go-to resource for many Canadians looking for single-click exposure at minimal costs. The Vanguard Canadian High Dividend ETF (TSE:VDY) is no exception, with some of the lowest fees on this list at only $2.20 per $1000 invested.
The fund's primary objective is to track the FTSE Canada High Dividend Yield Index and invests primarily in Canadian stocks that pay dividends. In terms of holdings, this fund is very top-heavy in the financial sector, especially Canada's Big 5 Banks.
Royal Bank of Canada and TD Bank are the only two companies in the fund with double-digit weightings—Enbridge, Canadian Natural Resources, and Bank of Montreal round out the top 5 holdings. So, as mentioned, 3 of 5 major Canadian banks are in the top 5 holdings of this ETF.
This fund is nearly a financial pureplay, with over 55% exposure to the financial sector. This is the most important thing you need to know about VDY. Do not invest in it thinking you're getting a diverse holding of Canadian stocks because you aren't.
The fund yields in the 4% range and is quite large, with assets under management of $2.1B. In terms of past performance, it has outperformed the TSX index over the last 1, 3, and 5-year periods. This makes sense, as the financial sector recovered very quickly from the COVID-19 pandemic, and before the bull run in 2022, oil had struggled significantly, bringing the TSX index down with it.
iShares Canadian Select Dividend ETF (TSE:XDV)
Another iShares product, the Canadian Select Dividend ETF (TSE:XDV) is a fund that aims to track the performance of the Dow Jones Canada Select Dividend Index. As a result, this fund exclusively owns Canadian equities. It has some holdings you won't find in the other ETFs on this list.
The fund's top holding is the Canadian Tire. Although it is an outstanding company, it's out of left field, considering that the bulk of Canadian dividend ETFs will contain higher weightings to larger banks like Royal and Toronto-Dominion.
The other unique holding in this fund at the time of writing is Labrador Iron Ore. This is a royalty company that pays a hefty distribution based on the revenue generated by its interest in the Iron Ore Company of Canada.
As we witnessed with gold, oil, and many other commodities in 2021 and 2022, prices have skyrocketed. As such, Labrador was rewarding shareholders with huge dividends, at one point even hitting the 15% range. It has settled now, but still remains a popular option among income investors.
The dividend ETF contains many other mainstays, including the Bank of Montreal, TC Energy, BCE, Fortis, National Bank, and Power Corporation of Canada.
Much like Vanguard's VDY, an important thing to note is that this fund is heavily weighted toward the Canadian financial sector, with over 53% exposure to the industry. The fund also contains no real estate investment trusts. So, if you're looking for diversification, this is something to consider.
It yields in the high 3% range at the time of writing and has a MER that will result in fees of $5.50 per $1000 invested. Not too shabby for single-click exposure to a wide variety of blue-chip Canadian stocks. Again, note its financial exposure and see if it's right for you.
iShares S&P/TSX High Dividend Index ETF (TSE:XEI)
The iShares High Dividend Index ETF (TSE:XEI) is one of the larger funds on this list, with assets under management of just under $1.5B at the time of writing. The fund struggled significantly during the COVID-19 pandemic but has since roared back and is putting up exceptional performances in 2022 and 2023.
This fund tracks a high-yield index. And many of the higher-yielding stocks in Canada are found in the oil and gas, telecom, and financial sectors. So, its outperformance post-pandemic isn't that surprising, as these industries have had huge bull runs.
Its top holdings are the Royal Bank of Canada and Toronto Dominion Bank. But, it also includes one of Canada's most prominent and highest-yielding telecoms in Telus. And finally, rounding out the top 5, it includes Canada's two major oil and gas companies, Canadian Natural Resources and Enbridge.
Many may be asking what the difference is between XEI and XDV highlighted above, and it is primarily the benchmarks they track. XEI tracks the S&P/TSX Composite High Dividend Index, while XDV tracks the Dow Jones Canada Select Dividend Index. Fees with XEI come in much lower as well, with a MER of 0.22%, or $2.20 per $1000 invested.
While XEI is very heavily weighted towards the financial sector, XDV is more of an energy play, with over 35% of its holdings in oil and gas. The fund currently yields in the mid-4 % range. It has generally underperformed the market over the long term because of its oil and gas exposure. However, that could change moving forward.
Horizons Active Canadian Dividend ETF (TSE:HAL)
Having an ETF list without including a Horizons product wouldn't be fair. They are a great company and make some great funds. With assets under management of only $135M, it barely meets my minimum criteria of $100M+ in AUM, but I am glad it does.
The Horizons Active CDN Dividend ETF (TSE:HAL) ultimately aims for long-term total returns, and it does so by investing in companies that provide high dividend income, dividend growth, and also long-term capital appreciation of their share price.
With a turnover ratio of nearly 60%, you can tell where this fund gets the "active" name from. And as such, its management fees are a little higher at 0.67%, which means you'll pay $6.70 per $1000 invested yearly to own HAL.
The ETFs top 5 holdings are Royal Bank, TD Bank, BCE, Telus, and Exchange Income Corp.
HAL yields 4.8%, making it one of the highest-yielding ETFs on this list. It is also a fund that has performed exceptionally well, outperforming the TSX over the short, mid, and long term.
Other ETFs on this list have been known to have too much exposure to the financial sector. HAL, however, was known to have a significant amount of exposure to the energy sector. Considering this is an actively managed ETF, it does make sense.
Fast forward to 2023, and the fund has reduced its energy exposure significantly, down from 35% to 18%, and has bumped up its utility exposure in a big way, to nearly 16% of the portfolio. This is very likely in an attempt to take advantage of depressed prices in utilities and telecoms.
Invesco Canadian Dividend ETF (TSE:PDC)
The first Invesco product on this list, the Invesco Canadian Dividend ETF (TSE:PDC) aims to track the NASDAQ Select Canadian Dividend Index, which consists mainly of blue-chip Canadian income payers with a reliable streak of growing their dividends.
The fund has assets under management of around $850M and 46 total holdings. Its top holdings are very similar to others on this list, with Enbridge, Bank of Nova Scotia, TD Bank, Royal Bank, and Bank of Montreal making up the top 5.
Keep in mind this ETF contains virtually no exposure to the consumer staple sector and is, much like many other ETFs on this list, a heavy bet on the Canadian financial industry.
It started trading in early 2011 and has put up high single digit annualized returns. It has management fees of 0.54%, meaning you'll pay $5.40 per $1000 invested.
The top 5 holdings in this fund make up over 33% of total assets. It is undoubtedly an ETF Canadians could look at if they want exposure to Canada's financial and energy sectors.