This post was originally written in 2015 but I have updated it due to recent questions about the top Canadian dividend ETFs available.  Check out the new entrants below.

Dividend investing has been a part of my portfolio strategy since I started MDJ but with a bit more focus on building that portion of the portfolio in recent years.

To rewind a little, I keep my Canadian dividend stocks in a leveraged non-registered account where I use my HELOC for capital and claim the interest as a tax deduction.  I own individual stocks, rather than Canadian dividend ETFs for various reasons (find out why), but there are a number of circumstances where ETFs would work better.

ETFs are easier to manage, and they follow a particular index which helps reduce the risk of owning individual stocks.  There are also downsides, particularly the annual management expense ratio (MER) and the lack of control in which positions that the ETF owns.

The selection of the best Canadian Dividend ETFs have grown over the years and the list has only gotten better with Blackrock iShare’s newest edition.  Note that the list below does not include Canadian real estate investment trusts (REITS). If you’re interested in more global diversification, check out my article on building a portfolio with low cost dividend ETFs.

 

Best Canadian Dividend ETFs for 2020:

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

Investment Style: This ETF follows the dividend achievers index which holds dividend stocks that have a history of increasing their dividend (at least 5 consecutive years).  I use this strategy for my leveraged dividend portfolio but with a very different selection of stocks.  The downside of this ETF is that it is expensive with MER of 0.66%, and some questionable stock picks in my opinion (65 positions in total).  The bright side of this fund is that it’s not dominated by financials like the other ETFs listed below (as of the date of this post).

Top 10 Holdings:

  1. Northview Apartment Real Estate Trust (NVU.UN)
  2. Corus Entertainment (CJR.B)
  3. Genworth MI Canada (MIC)
  4. IGM Financial (IGM)
  5. Granite Real Estate Investment Trust (GRT.UN)
  6. Russel Metals (RUS)
  7. Algonquin Power Utilities (AQN)
  8. Gibson Energy (GEI)
  9. Altagas ltd (ALA)
  10. Alaris Royalty Corp (AD)

MER: 0.66%

iShares Canadian Select Dividend Index ETF (XDV)

Investment Style:  This ETF uses a methodology that combines dividend growth, yield, and average payout ratio, then chooses 30 positions with the highest yield.  Although cheaper than CDZ, the MER is still pretty high for an ETF at 0.55%.  This ETF has a large exposure to financials at almost 59%.

Top 10 Holdings:

  1. Agrium Inc (AGU)
  2. CIBC (CM)
  3. Royal Bank of Canada (RY)
  4. Bank of Montreal (BMO)
  5. Bank of Nova Scotia (BNS)
  6. BCE (BCE)
  7. TransCanada Corp (TRP)
  8. IGM Financial (IGM)
  9. Laurentian Bank of Canada (LB)
  10. National Bank (NA)

MER: 0.55%

FTSE Canadian High Dividend Yield Index ETF (VDY)

Investment Style:   Vanguard is relatively new to the Canadian ETF scene but they have a good selection with lower MERs which helps put pressure on the other providers.  This ETF follows the FTSE Canadian High Dividend Yield index (60 positions) but does not include much detail about their strategy except that they are a  market-weighted index that purchases common stocks with a history of above-average dividend yield.  As with any ETF that is market weighted in Canada, it’s heavy in financials with almost 65% weighting.

Top 10 Holdings:

  1. Royal Bank of Canada (RY)
  2. Toronto-Dominion Bank (TD)
  3. Bank of Nova Scotia (BNS)
  4. Enbridge Inc. (ENB)
  5. Bank of Montreal (BMO)
  6. TransCanada Corp. (TRP)
  7. Manulife Financial Corp. (MFC)
  8. Canadian Imperial Bank of Commerce/Canada (CM)
  9. Sun Life Financial Inc. (SLF)
  10. Rogers Communications (RCI.B)

MER: 0.22%

BMO Canadian Dividend ETF (ZDV)

Investment Style:  This ETF uses a methodology that looks for dividend growth, yield, and payout ratio.   With 52 positions it has a MER in the middle of the pack.  In terms of sector diversification, this ETF does a decent job with 37% financials exposure.

Top 10 Holdings:

  1. Genworth MI Canada (MIC)
  2. IGM Financial (IGM)
  3. Inter Pipeline (IPL)
  4. CI Financial Corp (CIX)
  5. Vermillion Energy (VET)
  6. Capital Power Corp (CPX)
  7. National Bank of Canada (NA)
  8. AltaGas Ltd (ALA)
  9. Gibson Energy (GEI)
  10. Bank of Nova Scotia (BNS)

MER: 0.39%

iShares Core MSCI Canadian Quality Dividend Index ETF (XDIV)

Investment Style:  This is a new addition to the list with an inception date of June 2017.  This ETF is a low-cost portfolio of Canadian stocks with above-average dividend yield and steady or increasing dividends and strong overall financials.  This ETF has a fairly concentrated portfolio with only 22 positions, but with an MER of ~0.12%, it is seriously cheap for a dividend ETF.  I thinking that this new iShares ETF will start cannibalizing XDV due to its lower cost and similar exposure.

Top 10 Holdings:

  1. Bank of Montreal (BMO)
  2. CIBC (CM)
  3. Royal Bank of Canada (RY)
  4. Bank of Nova Scotia (BNS)
  5. TransCanada Corp (TRP)
  6. Sun Life Financial (SLF)
  7. Rogers Communications (RCI.B)
  8. Pembina Pipeline (PPL)
  9. Fortis (FTS)
  10. Agrium Inc (AGU)

MER: ~0.12% (no MER listed on the website, but their management fee is 0.10%)

PowerShares Canadian Dividend Index ETF (PDC)

Investment Style:  This ETF mirrors the NASDAQ Select Canadian Dividend Index.  This ETF owns high-yielding Canadian stocks with a track record of growing dividends (43 positions).  While this ETF is not exactly cheap with a MER of 0.55%, it has a little less exposure to financials @ 30%.

Top 10 Holdings:

  1. CIBC (CM)
  2. TELUS (T)
  3. Power Financial Corp (PWF)
  4. BCE Inc (BCE)
  5. Pembina Pipeline (PPL)
  6. Power Corp of Canada (POW)
  7. IGM Financial (IGM)
  8. Brookfield Infrastructure Partners (BIP.UN)
  9. Shaw Communications (SJR.B)
  10. Emera (EMA)

MER: 0.55%

 

Canadian Dividend ETF vs Dividend Stock Picking

Should I focus on investing in the best Canadian ETFs, or should I consider investing into individual dividend stocks on the TSX? 

I believe both options are viable and recommended, and I personally mix both in my portfolio.

Depending on your appetite for risk, how much knowledge and experience you have on the market, and how much time you can spend on managing a stock portfolio, you may benefit from buying individual dividend stocks too. You can view our list of the best dividend growth stocks in Canada and decide which route is better for you as an investor.

If you want to opt for an easy resource that will help you manage your dividend portfolio for a reasonable cost, consider Dividend Stocks Rocks as per below:

The DSR Newsletter:

Dividend Stocks Rocks (DSR), is a superb resource for everything stock investing. It is managed by my fellow blogger Mike Heroux from the Dividend Guy Blog since 2013.

DSR is not just a weekly newsletter with stock picks. It’s a program that will help you manage portfolio and improve your results. 

Our readers are eligible for a 45% lifetime discount clicking on the button below:

 

How do I invest in the Best Dividend ETFs in Canada?

Million Dollar Journey advocates for two types of low-fee methods of investing. One would be discount brokerages, and specifically ones that offer Canadian ETF buying for free, and the second one is a more hands-off approach of robo-investing which is becoming increasingly popular in Canada and for a good reason. View our quick and easy comparison below to see which one fits you best in order to buy Canadian dividend ETFs:

Best for DIY Investing

Cheapest way to invest on your own.
Buy ETFs for FREE!
No annual fees (accounts over $15,000).
Very reliable and top-notch service.
Roughly 2 hours of paperwork on initial setup

Questrade Review

Best for Passive Investing:

Zero paperwork – sign up in 10 minutes online or via app
Easiest way to automatically invest a part of your paycheque each month
Excellent use of index investing principles
Perks for investors with more than $100,000
Although cheap, not as cheap as Questrade

Wealthsimple Review

 

Final Thoughts

Out of the six Canadian dividend ETFs, there is no clear-cut “winner” as each has their good and bad attributes.  If you are dead set on a dividends only portfolio, then you will probably need to select a combination of two ETFs to get proper sector diversification.

I like the strategy that CDZ uses (focus on dividend growth), but their MER is high, and some of their positions are questionable.  For example, some of the holdings have not increased their dividend for 5 years in a row which goes against their core strategy.  As well, CDZ has very little financial sector coverage which can be a good or bad thing depending on your existing exposure to the sector.

XDV is a popular ETF,  but expensive with significant exposure to the financial sector.  With the new kid on the block XDIV out there (very similar exposure and positions), I imagine that there will be an outflow of assets from XDV to XDIV because of the lower MER (~0.12%)

Vanguards VDY is a reasonable deal with 0.22% MER, and has very similar holdings as XDV/XDIV.   However, VDY has 60 positions which provide a little more diversification over XDVs 30 positions and XDIVs 22 positions.  I like to consider the trio of VDY/XDV/XDIV as financial dividend ETFs as their financial weighting is 60%+.

ZDV has a reasonable MER, but with top holdings that appear to be very volatile with high payout ratios.  Personally, I’m not a fan of this ETF due to its holdings.

Finally, the other new entrant to this list is PowerShares PDC.  I personally like the holdings in this ETF, but not a fan of the fee (0.55%).  In terms of a combination of ETFs to get balanced exposure, I would probably use a combination of XDIV/PDC or VDY/PDC.

If you’re looking for distributions, there are other options as well such as REIT ETFs like iShares XRE, BMO ZRE or Vanguards VRE.  For the adventurous, there are also covered call ETFs available by BMO.

If you decide to invest in low-fee ETFs, make sure to consider the discount brokerages that allow commission-free ETF trading.

Photo Credit: My 9-year-old daughter.

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