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 nice, investors looking for income may not find broad-based index funds to be the solution. In order to get the income they desire, they'll need to seek out some of the best Canadian dividend ETFs on the market today.
These are more "niche" options for those who are looking to increase their passive income in retirement, and they aim to invest in Canadian dividend stocks, particularly those with a high yield. Most of them will provide modest long-term capital growth and will 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 strong long-term investments.
For some, the fact some of these ETFs issue monthly dividend income is a huge bonus as well, as most stocks pay dividends on a quarterly basis.
However, it is important to note that we are paying for convenience. Fees erode investment returns over time, this is an undeniable fact and is present in both ETFs and mutual funds. What you need to figure out for yourself is 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, management fees. current holdings and much more. I'll try to include as many different fund operators as I can, as there is a wide variety of options here in Canada including Bank of Montreal, Vanguard, Horizons, and iShares.
Keep in mind, this list is in no particular order either, as each Canadian dividend ETF on this list provides a unique approach to income investing.
However, there will be some criteria that need to be met. I'm going to avoid listing strategy-type funds like covered call ETFs, and I'm going to stick to funds with over $100M in assets under management at the time of writing.
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)
1. iShares Canadian Financial Monthly Income ETF (TSE:FIE)
iShares provides a unique product for Canadian dividend seekers with a focus on not only the Canadian banking sector but also some insurers and asset managers. But it's important to keep in mind that this fund is not 100% equities. In fact, 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 high 5% range and pays out on a monthly basis.
Its 5 holdings include a Canadian preferred share ETF, a Canadian corporate bond ETF, and 3 of Canada's major banks in Royal Bank, CIBC, and Bank of Montreal.
The fund aims to pay a set distribution on a monthly basis. Although it never does guarantee that this distribution will be paid, it's been extremely reliable at doing so.
Management fees come in around 0.81%, which means you'll pay $8.10 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.
Overall, with nearly $900M in assets under management, this is a very popular fund here in Canada. I'd wager 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 it's easy to seek out high yields in the utility sector, the financial sector 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.
2. iShares TSX 60 Index ETF (TSE:XIU)
The iShares S&P/TSX 60 Index ETF has truly 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 high 2% range simply because a lot of the companies in Canada, especially the larger ones with significant economic moats, pay strong dividends.
Its largest holdings contain the likes of 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 inside of this portfolio. However, now that it has undergone a significant correction, it has slid down.
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 largest and most liquid funds in the country, with assets under management of just shy of $11B. And over the course of its existence, it's done an admirable job at outperforming the TSX. This is likely due to the fact the TSX has a large amount of cyclical energy and material plays within it, and XIU aims to capture only the largest ones.
The one downfall you could say XIU has is that it's a little over-exposed to the financial sector at 36%~. 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. In fact, you'll only pay $1.80 per $1000 invested to own XIU.
3. 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, you gain exposure to over 93 companies that have consistently grown the dividend for 5 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 the dividend for 5+ consecutive years.
In terms of holdings, Fiera Capital, Slate Grocery, Pembina Pipeline, Enbridge, Capital Power, and TC Energy are some of the largest. The fund also has some exposure 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 it is well diversified with its largest holding making up only 2.9% of the entire portfolio. This should make the fund a little less volatile. The largest exposure on an industry level is the financial sector, which comes in at 24% of the fund. This is one of the lowest allocations to the financial sector on this list. The rest of it 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 5 years or longer, naturally on a year-to-year basis you're going to see changes. 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 a little 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.
4. iShares Core MSCI Quality Dividend Index ETF (TSE:XDIV)
The iShares Quality Dividend Index 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 is an index fund that 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, it is possible you will 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 TD and Royal Bank, Sunlife and Manulife Financial, and Fortis.
The fund has double-digit weightings in the utility, energy, telecom, and basic material sector but as you'll see with XDIV and many other Canadian dividend ETFs on this list, it is very heavy in financials. In fact, at the time of writing, 50% of XDIV is financial companies.
The fund is relatively new, debuting in mid-2017. So in terms of results, we don't have much to go off of. However, over its short existence, it has managed to turn out 8% annualized gains. Over that same timeframe, it's about the middle of the pack in terms of returns when 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, which is the lowest fee out of all ten ETFs listed. And with a dividend yield in the mid-to-high 3% range, it's certainly attractive from an income standpoint as well.
5. BMO Canadian Dividend ETF (TSE:ZDV)
The first BMO fund on this list is the BMO Canadian Dividend ETF. With assets under management of just shy of $900M and daily trading volume in excess of 78,000 shares a day, 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 on a relatively consistent basis. However, ZDV has been around for a bit, debuting in late 2011. The fund yields 4% and holds just over 50 companies.
The fund is yield weighted, meaning it is going to target higher-yielding companies and give them the heavier allocations in the fund to ultimately increase the distribution. This is exactly 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. Following that we have other notable high yielders like 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 really 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 around 1.7% 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, make sure to read the prospectus.
6. 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 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 is a fund that is very top-heavy in the financial sector, primarily Canada's Big 5 Banks.
Royal Bank of Canada and TD Bank are the only two companies in the fund that have a double-digit weightings and Enbridge, The Bank of Nova Scotia and Bank of Montreal round out the top 5 holdings. So, as mentioned, 4 of 5 major Canadian banks are in the top 5 holdings of this ETF.
In fact, this fund is essentially a financial pureplay, with over 55% exposure to the financial sector. This is arguably 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 $1.7B. In terms of past performance, it has outperformed the TSX index over the last 1, 3, and 5 year time periods. This makes sense, as the financial sector was one that recovered very quickly from the COVID-19 pandemic, and prior to the bull run in 2022, oil had struggled significantly bringing the TSX index down with it.
7. iShares Canadian Select Dividend ETF (TSE:XDV)
Another iShares product, the Canadian Select Dividend ETF 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 and actually has some holdings you won't find in the other ETFs on this list.
The fund's top holding is the Canadian Imperial Bank of Commerce. Which, although it is an outstanding company, it's a little bit out of left field considering the bulk of Canadian dividend ETFs will contain higher weightings to the 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.
The dividend ETF contains many of the other mainstays including Bank of Montreal, TC Energy, BCE, Fortis, National Bank, and Power Corporation of Canada.
An important thing to note, much like Vanguard's VDY, is that this fund is very heavily weighted towards the Canadian financial sector with over 55% exposure to the sector. 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 mid 4% 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, just make note of its financial exposure and see if it's right for you.
8. iShares S&P/TSX High Dividend Index ETF (TSE:XEI)
The iShares High Dividend Index ETF is one of the larger funds on this list with assets under management of just over $1.3B 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 2021 and 2022.
This fund tracks a high yield index. And, a lot of the higher-yielding stocks in Canada are found in the oil and gas, telecom, and financial sectors. So, its outperformance post-pandemic really isn't that surprising as all of these industries have had huge bull runs.
Its top holdings are Canada's largest banks like Toronto Dominion and Royal Bank. But, it also includes Canada's largest and highest yielding telecom in BCE. And finally, rounding out the top 5, it includes Canada's two major pipelines, TC Energy 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 and has generally underperformed the market over the long term because of its oil and gas exposure. However, that could very well change moving forward.
9. Horizons Active Canadian Dividend ETF (TSE:HAL)
It wouldn't be fair to have an ETF list without including a horizons product. They are a great company and make some great funds. With assets under management of only $112M, it barely meets my criteria of a minimum of $100M+ in AUM, but I am glad it does.
The Horizons Active CDN Dividend ETF ultimately aims for long-term total returns, and it does so by investing in companies that provide strong dividend income, dividend growth, and also long-term capital appreciation of their share price.
With a turnover ratio of nearly 77%, 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 on a yearly basis to own HAL.
The ETFs top 5 holdings are Royal Bank, TD Bank, Ovintiv, Telus, and Exchange Income Corp.
HAL only yields around 3.5%, so it's not a fund that high-yield seekers will likely find attractive. However, this is a fund that has posted very strong total returns since its early 2013 inception, outpacing the TSX index with 9.4% annualized returns.
Other ETFs on this list have been known to have a bit too much exposure to the financial sector. HAL however is known to have a significant amount of exposure to the energy sector. Considering this is an actively managed ETF, it does make sense. The fund manager is attempting to take advantage of rising crude and the popularity in oil stocks.
However, with nearly 35% exposure to the energy sector, this is something an investor is going to have to take into considering before buying HAL. Although pipeline companies like TC Energy Corp have proven to be able to withstand both bear and bull oil markets, many producers have struggled to do the same which could result in long term underperformance if the fund doesn't adjust.
10. Invesco Canadian Dividend ETF (TSE:PDC)
The first Invesco product on this list, the Invesco Canadian Dividend ETF aims to track the NASDAQ Select Canadian Dividend Index, which consists largely of blue-chip Canadian income payers that have a reliable streak of growing their dividends.
The fund has assets under management of around $900M and it has 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 no exposure to the consumer staple sector and is much like a lot of other ETFs on this list, a heavy bet on the Canadian financial sector.
It started trading in early 2011 and since then has put up annualized returns of 9.36%. It has management fees of 0.55%, meaning you'll pay $5.50 per $1000 invested. With a turnover ratio of 56%, this fund is more on the active side when it comes to rebalancing its holdings, which is likely why fees come in a bit higher.
The top 5 holdings in this fund make up over 33% of total assets, and it is certainly an ETF Canadians could look at if they want exposure to Canada's financial and energy sectors.