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 international dividend ETFs.
Best Canadian Dividend ETFs for 2020:
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:
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:
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.
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