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Top Canadian Dividend ETFs for Passive Income in November 2021

Posted on May 28, 2021 by Mathieu Litalien

In today’s markets, investing in a high-quality basket of stocks has never been easier, especially for those just learning how to invest.

The popularity of exchange traded funds (ETFs) has made it so that even the most novice investor can reap the rewards of a bull market.

You might also be surprised to know that there are plenty of Canadian dividend ETF options for those seeking income on autopilot.

Most of Canada’s Dividend ETFs are dominated by financials

This is not all that surprising as the financial industry accounts for over 30% of the TSX Index.

The financials are further concentrated towards Canada’s big banks. Considering they have been paying uninterrupted dividends for over 100 years, including them as the backbone of a dividend ETF in Canada is probably a smart move.

It is important to make note of these weightings. If you decide to hold a basket of ETFs in an effort to diversify your holdings, it is important not to double up on ETFs that offer the same exposure to Canada’s financial services sector.

 With that in mind, here are the top Canadian Dividend ETFs heading into 2020. If you're looking more so for ETFs that track broader indexes, check out our list of the top Canadian index funds.

Horizons Active CDN Dividend ETF (TSX:HAL)

Top 10 Holdings

wdt_ID Company Weight
1 Open Text Corp (OTEX) 4.87
2 Royal Bank of Canada (RY) 4.49
3 Enghouse Systems Ltd (ENGH) 4.43
4 Constellation Software Inc (CSU) 3.98
5 Capital Power Corp (CPX) 3.83
6 WSP Global Inc (WSP) 3.66
7 Brookfield Infrastructure Partners LP (BIP.UN) 3.63
8 TMX Group (X) 3.47
9 TD Bank (TD) 3.32
10 TFI International Inc (TFII) 3.17

As a smaller ETF, Horizons Active CDN Dividend ETF isn’t as well known as its larger peers.

It is an actively managed ETF that invests in North American dividend paying companies. Although it does have small exposure to US stocks (just over 4%), the majority (95%) of its holdings are TSX-listed companies.

It has net assets of $80.21 million and pays out a quarterly dividend that currently yields 3.58%. HAL has a moderate risk profile and MER fees of 0.67%.

Despite its small stature, it has been one of the best performing ETFs in the country.

In fact, this ETF was outperforming the TSX on a fairly consistent basis prior to COVID-19. Scroll down a bit to see its overall dividend adjusted performance over the last 5 years when compared to the index.

Since inception (2010), it has returned 8.3% annually. In 2020, the ETF was down 2.75 %, lagging the TSX Index which returned 1.95%.

We can attribute most of this outperformance by the index to material companies, particularly gold miners.

What is particularly attractive about HAL, is that it is one of the more diversified ETFs and one of the few in which financials do not dominate.

The top-weighted sector is utilities (22.7%) and financial services account for only 17.6% of holdings.

As you'll see, three of the top four holdings in this portfolio are actually tech options, Open Text, Enghouse Systems and Constellation Software.

No stock accounts for more than 5% of holdings and the top 10 account for 38.9% of total assets.

All told, Horizons is an attractive Canadian dividend ETF for those looking for a well-balanced portfolio and one whose primary focus is not financials.

HAL 5 year dividend adjusted performance vs the TSX Index


BMO Canadian Dividend ETF (TSX:ZDV)

Top 10 Holdings

wdt_ID Company Weight
1 Enbridge (ENB) 5.21
2 Bank of Nova Scotia (BNS) 4.99
3 Royal Bank of Canada (RY) 4.98
4 BCE Inc (BCE) 4.88
5 TD Bank (TD) 4.86
6 CIBC (CM) 4.76
7 CN Railway (CNR) 3.87
8 Telus Corp (T) 3.82
9 Bank of Montreal (BMO) 3.55
10 TC Energy Corp (TRP) 3.50

The BMO Canadian Dividend ETF seeks to provide exposure to the performance of a yield weighted portfolio. It also targets companies that have the potential for long-term capital appreciation.

ZDV has net assets of $549.46 million and pays out an attractive monthly dividend that currently yields 4.47%.

It is important to note that this BMO ETF is among the most volatile in the Canadian dividend & income equity category. This makes sense since it is targeting higher yield stocks.

ZDV’s holdings closely resemble that of the TSX Index weightings.

Financial services account for 39.45% which is more than triple that of the energy sector which accounts for 12.27% of the portfolio.

Although materials and industrials account for 13.7% and 12.5 % of the TSX Index, they only account for 7.42% and 7.91% of ZDV’s holdings, respectively.

Making up for that shortfall is the utility sector which accounts for 12.4% of holdings versus its 5.1% TSX Index weighting.

All other industries are inline with TSX Index sector weightings.

Even though no single stock accounts for more than 5.5% of holdings, the top 10 holdings have a heavy bank presence.

Canada’s big 5 banks are all in the top 10 holdings of the fund, and make up over 23% of ZDV’s assets.

The largest holding is Enbridge (TSX:ENB) at 5.21%.

As you'll see with the performance chart below, ZDV has pretty well matched the return of the TSX Index over the last 5 years, partly because it hasn’t returned to its pre-COVID highs and the TSX Index has.

ZDV 5 year dividend adjusted performance vs the TSX Index


S&P/TSX Canadian Dividend Aristocrats Index Fund (TSX:CDZ)

Top 10 Holdings

wdt_ID Company Weight
1 Keyera Corp (KEY) 3.05
2 Smartcentres REIT (SRU.UN) 3.01
3 Enbridge (ENB) 2.76
4 Pembina Pipeline (PPL) 2.75
5 Power Corporation (POW) 2.52
6 Canadian Natural Resources (CNQ) 2.27
7 Great-West Lifeco (GWO) 2.22
8 Fiera Capital (FSZ) 2.16
9 BCE (BCE) 2.16
10 Exchange Income Corp (EIF) 2.14

Did you know there is only one Canadian ETF that currently tracks Canada’s Dividend Aristocrats?

In comparison, there are 10 funds south of the border that track the U.S. Aristocrats in some way. Aristocrats are stocks that have raised their dividends for at least five consecutive years.

The fund seeks to replicate the investment of the S&P/TSX Canadian Dividend Aristocrats Index.

To be included in the index, stocks must have a market cap of at least $300 million. There are currently a whopping 82 stocks in the portfolio.

The fund has MER fees of 0.66% and pays out a monthly dividend that currently yields 3.98%. It has net assets of $851.4 million, which makes it one of the largest ETFs on our list. CDZ has a moderate risk profile.

In 2020, it underperformed the broader TSX Index, but it has outperformed the TSX over the last 3 years, 5 years, and 10 years. Over the past 10 years it has averaged a compound annual return of 6.47%.

The aristocrat fund is a well-balanced ETF with only one sector (financials) accounting for more than 20% of holdings. Other than that, most sectors are in the 7-17% range.

The top 10 holdings are quite interesting and outside of the norm.

They account for only 24.14% of holdings and no stock accounts for more than 3.2%.

This ETF is a great option for investors looking for a wider variety of stocks, and those seeking to replicate the performance of the Canadian Dividend Aristocrats.

CDZ 5 year dividend adjusted performance vs the TSX Index


iShares Core S&P/TSX Composite High Dividend Index ETF (TSX:XEI)

Top 10 Holdings

wdt_ID Company Weight
1 Toronto Dominion Bank (TD) 5.07
2 Enbridge (ENB) 5.02
3 Royal Bank of Canada (RY) 4.99
4 Bank of Nova Scotia (BNS) 4.90
5 Nutrien (NTR) 4.89
6 TC Energy (TRP) 4.84
7 Canadian Natural Resources (CNQ) 4.80
8 Suncor Energy (SU) 4.73
9 BCE Inc (BCE) 4.64
10 Pembina Pipeline Corp (PPL) 4.39

The iShares Core S&P/TSX Composite High Dividend Index ETF is geared towards high yield seekers.

It aims to replicate the S&P/TSX Composite High Dividend Index, which is comprised of approximately 50-75 stocks that are selected based on yield. Each index constituent is capped at 5% weight and no sector can account for more than 30% of holdings.

As of writing, the ETF will likely go through a bit of rebalancing, as some of its holdings do exceed the 5% and it currently has a 59.79% weighting towards the financial and energy sectors.

This high-yield ETF pays out its dividend monthly and at 0.20%, has one of the lowest MER fees. The low fee is probably the fund’s most attractive feature.

It has $841.3 million in assets and currently yields 5.01%. The fund underperformed the TSX Index in 2020 (-7.19% vs +1.95%), roughly matched the index over the last 3 years, and outperformed it over the last 5 and 10 years.

So, why the relatively poor performance lately? Due to its heavy weighting towards energy and financial stocks, which have severely lagged in terms of overall recovery since the COVID-19 crash, it's not surprising this ETF has underperformed.

With the market conditions in 2020, this was not a good mix.

Once financials do recover, we expect this dividend ETF to do better. However, if you are looking for diversification, this is not the ETF for you.

Likewise, the portfolio is also heavily weighted towards the Top 10 which account for 48.27% of assets.

Despite the 5% Index cap, there are two stocks that currently account for more than 5% of holdings. Among the top 10, you will see several of the largest blue-chip companies in Canada.

From Enbridge (TSX:ENB) to BCE (TSX:BCE), to the Bank of Nova Scotia (TSX:BNS), the top 10 is a “who’s who” of the best blue chip stocks in Canada.

However, considering several of those blue chips are currently in industries that are out of favor, particularly energy/pipelines, the ETF may struggle moving forward until economic outlook picks up.

XEI 5 year dividend adjusted performance vs the TSX Index


iShares Canadian Select Dividend Index ETF (TSX:XDV)

Top 10 Holdings

wdt_ID Company Weight
1 CIBC (CM) 8.52
2 Canadian Tire Corp (CTC.A) 8.07
3 Bank of Montreal (BMO) 6.93
4 Royal Bank of Canada (RY) 6.30
5 Bank of Nova Scotia (BNS) 5.30
6 Toronto Dominion Bank (TD) 4.66
7 National Bank of Canada (NA) 4.20
8 BCE Inc (BCE) 3.89
9 TC Energy Corp (TRP) 3.85
10 Sun Life Financial (SLF) 3.32

iShares has another twist for those seeking a higher yield.

The iShares Canadian Select Dividend Index ETF seeks to replicate the performance of the 30 highest yielding, dividend-paying companies in the Dow Jones Canada Total Market Index.

Constituents are selected by Dow Jones using a rules-based methodology including an analysis of dividend growth, yield and average payout ratio.

The fund is the largest ETF on our list with net asset value of $1.39 billion. It has MER fees of 0.55%, pays a monthly dividend and currently yields 4.79%.

In 2020, the fund underperformed the TSX Index by a little more than 2%. Much like XEI above, the fund performed inline with the TSX over the last 3 years but outperformed over the past 5 and 10 years.

The ETF has a very respectable 10 year average return of around 6%.

XDV has a higher-than-average risk profile, just like its high yield ETF peer XEI.

This is where the similarities end as XDV has no weighting caps and it shows. The financial sector accounts for a whopping 60.53% of holdings! It is close to being a financials pure-play.

No other sector has even a double-digit weighting. The utilities (9.85%) and communications (9.52%) sectors make up the bulk of the remaining 40%.

Likewise, the top 10 holdings account for 55% of the portfolio. The top holding, CIBC (TSX:CM) accounts for 8.52% of the portfolio.

Six of the top 10 holdings are banks and collectively the Big 6 banks account for 35.91% of the portfolio.

If you are looking for a highly concentrated ETF that is laser focused on the big banks, look no further.

XDV 5 year dividend adjusted performance vs the TSX Index

Disclaimer: The writer of this article or employees of Stocktrades Ltd may have positions in securities listed in this article. Stocktrades Ltd may also be compensated via affiliate links in the post below.

Mathieu Litalien

About the author

Mathieu is an individual investor and has been investing part-time for the better part of the past 20 years. He is primarily interested in fundamental analysis, focusing on the long-term and his portfolio is composed primarily of dividend-paying equities. Mathieu has a moderate risk profile and also looks for growth and value. His passion for finance and the markets have led him to his MBA and writing for Seeking Alpha and Stocktrades. Mathieu also focuses primarily on stock research and content production for Stocktrades.ca Premium and the Stocktrades blog.