June 24th 2021: In this post, we will be going over the Best Canadian Dividend Exchange Traded Funds (ETF) in Canada. We started by selecting 11 of the most popular ETFs that invest exclusively in Canadian stocks. Then, we compared these ETFs based on the dividend yield, performance over a 3 years period and volatility. For each ETF, we will provide the funds’ objective, holdings and sector allocation. Dividend ETFs can be a great long term investment and a stable source of income.
Benefits of holding a dividend ETF
Canadian Dividend ETF offer an instant exposure to a large number of businesses. This being said, most of Canadian Dividend ETFs are dominated by the Financial and Energy sector. As you will see below, some are more exposed than others. Keep this mind when planning your overall sector allocation.
- Predictable income stream
Most of the ETFs selected below pay an income on a monthly basis which is great in case you are looking for a solid steady income.
- Tax efficiency
An ETF that invest in US or International stocks incurs a minimum of 15% withholding tax. This makes ETFs that invest in Canadian stocks much more tax efficient for investors.
MER and Volatility (Best dividend ETF Canada list)
|XDV – iShares Canadian Select Div Indx||1,700||0.55||0.87|
|XEI – Ishares S&P TSX Comp High Div Index||1,110||0.22||1.10|
|VDY – FTSE Canadian High Div Yield Index||1,060||0.21||0.92|
|CDZ – iShares S&P/TSX Can Div Aristocrats Idx||941||0.66||1.08|
|FIE – Ishares CDN Fin Mthly Income||896||0.89||1.34|
|PDC – Invesco Can Div Index||759||0.56||0.90|
|ZDV – BMO Canadian Div||657||0.39||1.00|
|XDIV – iShares Core MSCI Can|
Quality Div Indx
|DGRC – CI Wisdomtree CDN Qlty Div Gwth Idx||377||0.24||0.93|
|RBNK – RBC CDN Bank Yield Indx||152||0.32||1.01|
|RCD – RBC Quant CDN Div Leaders||108||0.42%||0.93|
– XDV – iShares Canadian Select Dividend Index has the lowest volatility and is the largest Canadian Dividend ETF in terms of assets. The highest volatility goes to FIE – Ishares CDN Fin Mthly Income. This is not surprise knowing the fund invests primarily in the financial sector, so it’s less diversified that the rest of the Canadian dividend ETFs in the list.
– XDIV (iShares Core MSCI Canadian Quality Dividend Index ETF) has the lowest MER in the list (0.11% only).
Yield and performance (Best dividend ETF Canada list)
|1 yr||3 yrs|
Source Yahoo Finance Data as of June 24th 2021
– RBNK – RBC CDN Bank Yield Index has the best performance in all the ETFs selected. RBNK and FIE are not diversified; they both invest mainly in Canadian Banks.
– FIE (Ishares CDN Fin Mthly Income) offers the highest dividend yield at 6.06%. It’s a great ETF if you are bullish on the banking sector.
– XDV, VDY and CDZ remain the best dividend ETF in Canada if you are looking for a diversified dividend income. They combine: low volatility + interesting yields and great performance.
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XDV – iShares Canadian Select Dividend Index ETF
iShares Canadian Select Dividend Index ETF: provides long-term capital growth by investing in 30 high yielding Canadian companies in the Dow Jones Canada Total Market Index.
XDV – Holdings and sector allocation
|CANADIAN IMPERIAL BANK OF COMMERCE||8,73|
|CANADIAN TIRE LTD CLASS A||6,72|
|LABRADOR IRON ORE ROYALTY CORP||6,47|
|BANK OF MONTREAL||6,26|
|ROYAL BANK OF CANADA||5,96|
|TC ENERGY CORP||4,80|
|BANK OF NOVA SCOTIA||4,63|
|NATIONAL BANK OF CANADA||3,90|
|Cash and/or Derivatives||0.17|
XEI – iShares Core S&P/TSX Composite High Dividend Index ETF
This ETF objective is to replicate the performance of the S&P/TSX Composite High Dividend Index. The fund’s objective is long term capital growth by investing in Canadian companies operating across diversified sectors. XEI pays a monthly dividend income which can be appealing for investor who are looking for a frequent payout.
XEI Holdings and sector allocation
|TC ENERGY CORP||Energy||5.08|
|ROYAL BANK OF CANADA||Financials||5.00|
|BANK OF NOVA SCOTIA||Financials||4.88|
|CANADIAN NATURAL RESOURCES LTD||Energy||4.77|
|SUNCOR ENERGY INC||Energy||4.60|
|PEMBINA PIPELINE CORP||Energy||4.48|
|Cash and/or Derivatives||0.41|
VDY – Vanguard FTSE Canadian High Dividend Yield Index ETF
FTSE Canadian High Dividend Yield Index ETF tracks the performance of the FTSE Canada High Dividend Yield Index, which consists of Canadian stocks having a high dividend yield. Due to the nature of the Canadian market, this fund has large portion of its investment portfolio in Energy and Financials.
VDY Holdings and sector allocation
|Holding name||% of market value|
|Royal Bank of Canada(RY)||14.23%|
|Bank of Nova Scotia(BNS)||8.29%|
|Bank of Montreal(BMO)||6.13%|
|Canadian Imperial Bank of Commerce(CM)||4.81%|
|TC Energy Corp.(TRP)||4.61%|
|Manulife Financial Corp.(MFC)||4.53%|
|Canadian Natural Resources Ltd.(CNQ)||3.69%|
CDZ – S&P/TSX Canadian Dividend Aristocrats Index Fund
The S&P/TSX Canadian Dividend Aristocrats ETF includes only large companies that are part of the TSX and who have increased their dividend consistently for at least 5 years period. This fund has been around for a while now.
CDZ Holdings and sector allocation
|SMARTCENTRES RL ESTATE INVESTMENT||2,87|
|PEMBINA PIPELINE CORP||2,69|
|FIERA CAPITAL CORP CLASS A||2,26|
|CANADIAN NATURAL RESOURCES LTD||2,22|
|EXCHANGE INCOME CORP||2,11|
|TC ENERGY CORP||2,11|
|POWER CORPORATION OF CANADA||2,10|
FIE – Ishares CDN Fin Mthly Income
Seeks to maximize total return and to provide a stable stream of monthly cash distributions. FIE has a high exposure to the financial sector.
FIE Holdings and sector allocation
|ISHARES S&P/TSX CANADIAN PREFFERED||20.42|
|iShs Canadian Corp Bnd Idx ETF||9.09|
|CANADIAN IMPERIAL BANK OF COMMERCE||8.87|
|ROYAL BANK OF CANADA||7.99|
|MANULIFE FINANCIAL CORP||7.87|
|SUN LIFE FINANCIAL INC||7.07|
|NATIONAL BANK OF CANADA||6.80|
|POWER CORPORATION OF CANADA||5.54|
|IA FINANCIAL INC||5.05|
|Food & Staples Retailing||0.55|
|Autos & Components||0.30|
PDC – Invesco Canadian Dividend Index ETF
Invesco Canadian Dividend Index ETF seeks to replicate the performance of the NASDAQ Select Canadian Dividend Index. Don’t be confused with NASDAQ, the companies are 95% Canadian. The fund applies strict criteria to select only companies that have increased their dividend overtime and that offer a high yield.
PDC Holdings and sector allocation
|Royal Bank of Canada||7.97%|
|Bank of Nova Scotia/The||7.85%|
|Bank of Montreal||7.16%|
|TC Energy Corp||4.15%|
|Canadian Natural Resources Ltd||4.12%|
|Canadian Imperial Bank of Commerce||4.01%|
|Manulife Financial Corp||3.95%|
|Total top holdings||59.05%|
ZDV – BMO Canadian Dividend ETF
BMO Canadian Dividend ETF seeks exposure to companies that exhibit growth in paying dividends. The fund has a large number of holding and allocates a maximum of 5% per position.
ZDV Holdings and sector allocation
|5.28%||BANK OF NOVA SCOTIA/THE|
|5.10%||CANADIAN IMPERIAL BANK OF COMMERCE|
|5.10%||ROYAL BANK OF CANADA|
|3.87%||CANADIAN NATIONAL RAILWAY CO|
|3.81%||BANK OF MONTREAL|
XDIV – iShares Core MSCI Canadian Quality Dividend Index ETF
XDIV invests in Canadian stocks with strong financials. The companies selected pay above-average dividend yields and have either paid steady or increasing dividends.
XDIV portfolio holdings and sector allocation
|CANADIAN IMPERIAL BANK OF COMMERCE||9.75|
|ROYAL BANK OF CANADA||9.13|
|TC ENERGY CORP||9.10|
|BANK OF NOVA SCOTIA||8.87|
|MANULIFE FINANCIAL CORP||8.24|
|SUN LIFE FINANCIAL INC||6.61|
|POWER CORPORATION OF CANADA||4.04|
as of June 23rd 2021
|Cash and/or Derivatives||0.24|
DGRC – CI WisdomTree Canada Quality Dividend Growth Index ETF
CI Wisdomtree CDN Qlty Div Gwth Idx holdings provide exposure to dividend-paying Canadian companies with growth characteristics.
DGRC Holdings and sector allocation
|MAGNA INTL INC NPV||6.49|
|SUN LIFE FINANCIAL INC.||5.34|
|GREAT WEST LIFECO INC NPV||5.14|
|Canadian Pacific Railway Ltd||5.13|
|THOMSON REUTERS CORP NPV||5.01|
|Canadian National Railway Co||4.92|
|INTACT FINL CORP||4.77|
|TC ENERGY CORP NPV||4.75|
As of March 25th
As of March 25th
RBNK – RBC CDN Bank Yield Index
RBC Canadian Bank Yield Index ETF seeks to replicate the Solactive Canada Bank Yield Index. The latter is focused only on the Canadian banking industry.
RBNK Holdings and sector allocation
|CANADIAN IMPERIAL BANK OF COMMERCE||25.1%|
|BANK OF NOVA SCOTIA||24.9%|
|BANK OF MONTREAL||17.0%|
|NATIONAL BANK OF CANADA||8.7%|
|ROYAL BANK OF CANADA||8.1%|
|Total % of top 10 holdings||100.0%|
As of March 25th
RCD – RBC Quant CDN Dividend Leaders
RBC Quant Canadian Dividend Leaders ETF seeks to provide unitholders with exposure to the performance of a diversified portfolio of high-quality Canadian dividend-paying equity securities that will provide regular income and that have the potential for long-term capital growth.
RCD Holdings and sector allocation
|CONSTELLATION SOFTWARE INC/CANADA||9.0%|
|ROYAL BANK OF CANADA||6.4%|
|CANADIAN NATIONAL RAILWAY CO||4.1%|
|CANADIAN IMPERIAL BANK OF COMMERCE||3.8%|
|MANULIFE FINANCIAL CORP||3.7%|
|BANK OF NOVA SCOTIA||3.4%|
|OPEN TEXT CORP||2.3%|
As of March 25th
As of March 25th
Buy a Dividend ETF or Pick my own dividend stocks
This is a recurring question, should I pick and buy my own dividend stocks or just invest in a Dividend ETF? Let’s try to answer this question in a rational way:
- MER vs Trading costs:
Buying and selling stocks has a cost built into it. The most talked about is the trading fees which could range from 5 to 15$ commission per trade. Let’s assume you trade at 5$ per transaction and you can buy ETFs for free (this option is now offered by several brokerage firms including Questrade). I prepared a table assuming you are holding 30 stocks versus buying an ETF and paying the MER (Management Expense Ratio).
The comparison table below show that for small amounts you are better off buying an ETF. Otherwise, trading costs will eat up your returns. However, once the amount in hand is higher (100K plus), owning an ETF will cost much more for investors. Thus, you are better off selecting quality dividend stocks on your own.
|Amount invested||30 Dividend|
|10,000 $||150$ / 1.5%||Buy ETF if MER is|
lower than 1.5%
|50,000 $||150$ / 0.3%||Buy ETF if MER is|
lower than 0.3%
|100,000 $||150$ / 0.15%||Buy ETF if MER is|
lower than 0.15%
The table above looks only at the commission fees paid by traders. There is other factors in play here:
– Time value money: selecting your own stocks requires a prep work (researching the market, analyzing your picks, testing your portfolio and readjusting if necessary…etc);
– Diversification: an ETF is a well diversified investment generally speaking. So, in order to compete with an ETF, you need to own at least 30 stocks as per academic research. One need also to point out that empirical research emphasizes ‘you need to own randomly selected stocks! this insures mathematically speaking low correlation between the stocks you own’ You can’t buy big names here and there and hope to achieve diversification. It’s a bit more complex. The correlation between your various investments needs to be analyzed. Buying 10 stocks that are highly correlated with each other is shooting yourself in the foot. Your stocks need to be a mix:
- various industries;
- Include both cyclical and non cyclical businesses;
- Include defensive stocks;
- Include various sizes of business (Large and mid).
The data on this website is for your information only. It does not constitute investment advice, or advice on tax or legal matters. Any information provided on this website does not constitute investment advice or investment recommendation nor does it constitute an offer to buy or sell or a solicitation of an offer to buy or sell shares or units in any of the investment funds or other financial instruments described on this website. Should you have any doubts about the meaning of the information provided herein, please contact your financial advisor or any other independent professional advisor.
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