Announcement: I am very excited to announce that I’m one of the speakers at the Canadian Financial Summit that runs from September 22 to 25. There are many excellent speakers including Rob Carrick, Andrew Hallam, Ellen Roseman, and Bridget Casey covering a wide range of topics at this year’s summit.
The summit is free to sign up for and I’d love it if you could come and join me in this excellent event. You can get your free ticket here.
A number of readers have inquired how I feel about dividend ETFs and what are the top Canadian dividend ETFs available in the market today. As of today, our dividend portfolio consists of 52 individual dividend stocks and 1 index ETF.
While we deploy a hybrid strategy by investing in both dividend stocks and index ETFs, you may have noticed that we don’t own any Canadian dividend ETFs. We only hold broad market index ETFs like VCN and XAW.
Isn’t it better to hold dividend ETFs for far better diversification than hold individual dividend stocks? Why do I end up deciding to hold individual dividend stocks rather than relying on these Canadian dividend ETFs?
Isn’t it easier to simply hold dividend ETFs than spend time on researching and purchasing individual dividend stocks? Wouldn’t it be cheaper in the low run when you consider all the trading commissions?
Before we dive into these questions about holding dividend ETFs vs. holding individual dividend stocks. Let’s take a look at some of the top Canadian dividend ETFs available as of 2020. Which one of these Canadian dividend ETFs come out ahead? Let’s find out.
Top Canadian Dividend ETFs
VDY – Vanguard Canadian High Dividend Yield Index ETF
Vanguard FTSE Canadian High Dividend Yield Index ETF seeks to track, to the extend reasonably possible and before fees and expense, the performance of a broad Canadian equity index that measures the investment return of common stocks of Canadian companies that are characterized by high dividend yield. VDY tracks the FTSE Canadian High Dividend Yield Index. The fund invests primarily in common stocks of Canadian companies that pay dividends.
- MER: 0.21%
- Yield: 3.82%
- Distribution: monthly
- Holdings: 39
- Net Assets: $1.2B
- Top 10 Holdings: Royal Bank (RY.TO), TD (TD.TO), Enbridge (ENB.TO), Bank of Nova Scotia (BNS.TO), Bank of Montreal (BMO.TO), CIBC (CM.TO), TC Energy Corp (TRP.TO), BCE Inc. (BCE.TO), Canadian Natural Resources (CNQ.TO), Manulife (MFC.TO)
- Holding Breakdown: 58.4% Financials, 23% Oil & Gas, 8.5% Telecommunications, 5.9% Utilities, 3.6% Basic Materials, 0.2% Industrials, 0.2% Real Estate, 0.1% Consumer Services.
ZDV – BMO Canadian Dividend ETF
BMO Canadian Dividend ETF was designed to provide exposure to a yield weighted portfolio of Canadian dividend paying stocks. The Fund utilizes a rules based methodology that considers the three year dividend growth rate, yield, and payout ratio to invest in Canadian equities. The portfolio is rebalanced in June and reconstituted in December.
- MER: 0.39%
- Yield: 4.14%
- Distribution: monthly
- Holdings: 52 holdings
- Net Assets: $699.8M
- Top 10 Holdings: Enbridge (ENB.TO), Royal Bank (RY.TO), BCE Inc (BEC.TO), Bank of Nova Scotia (BNS.TO), CIBC (CM.TO), TD (TD.TO), Canadian National Railway (CNR.TO), Telus (T.TO), TC Energy (TRP.TO), Bank of Montreal (BMO.TO)
- Holding Breakdown: 49.49% Financials, 13.73% Energy, 12.4% Utilities, 11.46% Communication, 8.74% Industrials, 6.71% Materials, 4.25% Consumer Staples, 1.85% Consumer Discretionary
iShares Canadian Select Dividend Index ETF seeks to provide long-term capital growth by replicating the performance of the Dow Jones Canada Select Dividend Index, net of expenses. Diversified exposure to 30 of the highest yielding Canadian companies in the Dow Jones Canada Total Market Index. The holdings in XDV are selected based on methodology analysis by dividend growth, yield, and payout ratio.
- MER: 0.55%
- Yield: 3.97%
- Distribution: monthly
- Holdings: 29
- Net Assets: $1,752.16M
- Top 10 Holdings: CIBC (CM.TO), Canadian Tire (CTC.A), Labrador Iron Ore Royalty Corp (LIF.TO), Bank of Montreal (BMO.TO), Royal Bank (RY.TO), BCE Inc (BCE.TO), TC Energy (TRP.TO), Bank of Nova Scotia (BNS.TO), TD (TD.TO), National Bank (NA.TO)
- Holding Breakdown: 53.78% Financials, 11.55% Communication, 11.49% Utilities, 6.73% Consumer Discretionary, 6.39% Materials, 5.84% Energy, 3.89% Industrials, 0.33% Cash.
iShares Core S&P/TSX composite High Dividend Index ETF seeks long-term capital growth by replicating the performance of the S&P/TSX Composite High Dividend Index, net of expenses. XEI is designed to be a long-term foundational holding for Canadian dividend investors.
- MER: 0.22%
- Yield: 3.97%
- Distribution: monthly
- Holdings: 75
- Net Assets: $1,036.8M
- Top 10 Holdings: Enbridge (ENB.TO), Royal Bank (RY.TO), BCE Inc (BCE.TO), TD (TD.TO), TC Energy (TRP.TO), Bank of Nova Scotia (BNS.TO), Canadian Natural Resources (CNQ.TO), Nutrien (NTR.TO), Suncor (SU.TO), Telus (T.TO)
- Holding Breakdown: 30.41% Financials, 28.26% Energy, 14.04% Communication, 11.75% Utilities, 5.49% Materials, 5.35% Real Estate, 2.69% Consumer Discretionary, 1.13% Industrials, 0.41% Health Care, 0.28% Cash, 0.19% Consumer Staples
iShares S&P/TSX Canadian Dividend Aristocrats seeks to replicate the S&P/TSX Canadian Dividend Aristocrats Index, less fees and expenses. Diversified exposure to a portfolio of high quality Canadian dividend paying companies. The underlying index screens for large, established Canadian companies that increased ordinary cash dividends every year for at least five consecutive years.
- MER: 0.66%
- Yield: 3.24%
- Distribution: monthly
- Holdings: 86
- Net Assets: $972.51M
- Top 10 Holdings: Keyera (KEY.TO), SmartCentre REIT (SRU.UN), Pembina Pipeline (PPL.TO), Enbridge (ENB.TO), Power Copr (POW.TO), Fiera Capital Corp (FSZ.TO), Canadian Natural Resources (CNQ.TO), Great West LifeCo (GWO.TO), BCE Inc (BCE.TO), CIBC (CM.TO)
- Holding Breakdown: 28.5% Financials, 15.53% Energy, 12.1% Industrials, 11.27% Real Estate, 10.33% Utilities, 6.91% Consumer Staples, 6.19% Communication, 3.26% Materials, 2.94% Consumer Discretionary, 1.93% Healthcare, 0.82% IT , 0.23% Cash
iShares S&P/TSX 60 Index ETF seeks long-term capital growth by replicating the performance of the S&P/TSX 60 Index, net of expenses. Exposure to large, established Canadian companies. XIU is the largest and most liquid ETF in Canada and started trading in 1990, making it the first ETF in the world.
- MER: 0.18%
- Yield: 2.55%
- Distribution: quarterly
- Holdings: 60
- Net Assets: $10,920M
- Top 10 Holdings: Shopify (SHOP.TO), Royal Bank (RY.TO), TD (TD.TO), Brookfield Asset Management (BAM.A), Enbridge (ENB.TO), Canadian National Railway (CNR.TO),Bank of Nova Scotia (BNS.TO), Bank of Montreal (BMO.TO), CIBC (CM.TO), Canadian Pacific Railway (CP.TO)
- Holing Breakdown: 35.24% Financials, 13.14% IT, 13.09% Energy, 10.33% Industrials, 10.20% Materials, 5.75% Communication, 3.92% Consumer Discretionary, 3.88% Consumer Staples, 3.19% Utilities, 0.66% Health Care, 0.46% Real Estate, 0.12% Cash
DGRC – CI WidsomTree Canada Quality Dividend Growth Index ETF
CI WisdomTree Canada Quality Dividend Growth Index ETF seeks to track, to the extend possible, the price and yield performance of the Wisdom Tree Canada Quality Dividend Growth Index. The index is a fundamentally weighted index designed to provide exposure to dividend-paying Canadian companies with growth charateristics.
- MER: 0.21%
- Yield: 2.12%
- Distribution: quarterly
- Holdings: 50
- Net Assets: $407.87M
- Top 10 Holdings: Thomason Reuters (TRI.TO), Rogers Communications (RCI.B), Royal Bank (RY.TO), Shaw Communications (SJR.B), Canadian National Railway (CNR.TO), CIBC (CM.TO), Bank of Montreal (BMO.TO), Bank of Nova Scotia (BNS.TO), TC Energy (TRP.TO), TD (TD.TO)
- Holding Breakdown: 31.84% Financials, 19.65% Industrials, 13.33% Telecommunication, 10.05% Consumer Staples, 9.38% Consumer Discretionary, 6.95% Materials, 6.71% Energy, 1.31% IT, 0.77% Real Estate
PDC – Invesco Canadian Dividend Index ETF
Invesco Canadian Dividend Index ETF seeks to replicate, to the extent reasonably possible and before fees and expenses, the performance of the NASDAQ Select Canadian Dividend Index, or any successor thereto. This Invesco ETF invests primarily in Canadian equity securities with 95% exposure to Canada and 5% to other countries.
- MER: 0.56%
- Yield: 3.71%
- Distribution: monthly
- Holdings: 44
- Net Assets: $774.7M
- Top 10 Holdings: Enbridge (ENB.TO), Royal Bank (RY.TO), Bank of Nova Scotia (BNS.TO), TD (TD.TO), Bank of Montreal (BMO.TO), BCE Inc (BCE.TO), CIBC (CM.TO), Telus (T.TO), Sun Life Financial (SLF.TO), TC Energy (TRP.TO)
- Holding Breakdown: 51.34% Financials, 20.54% Energy, 11.94 Telecommunication, 9.95% Utilities, 3.22% Real Estate, 2.38% Consumer Discretionary, 0.34% Materials, 0.30% Health Care
iShare Core MSCI Canadian Quality Dividend Index ETF seeks to provide long term capital growth by replicating the performance of the MSCI Canadian High Dividend Yield 10% Security Capped Index, net of expenses. This ETF selects securities with strong overall financials, including solid balance sheets and less volatile earnings. XDIV is designed to be a long term core holding for Canadian dividend investors.
- MER: 0.11%
- Yield: 3.94%
- Distribution: monthly
- Holdings: 23
- Net Assets: $457M
- Top 10 Holdings: CIBC (CM.TO), Royal Bank (RY.TO), Bank of Nova Scotia (BNS.TO), TC Energy Corp (TRP.TO), Bank of Nova Scotia (BNS.TO), TD( TD.TO), Manulife Financial (MFC.TO), Nutrien (NTR.TO), Sun Life Financial (SLF.TO), Fortis (FTS.TO), Power Corp of Canada (POW.TO)
- Holding Breakdown: 59.28% Financials, 14.23% Energy, 12.85% Utilities, 7.45% Materials, 5.98% Communication, 0.21% Cash.
Top Canadian Dividend ETFs – Sector Diversification
Here the sector diversification summary of the top Canadian dividend ETFs. Because the S&P/TSX Composite Index has a large exposure to the financial and energy sector, it shouldn’t come as a surprise that these Canadian dividend ETFs also have a large exposure to these two sectors.
|Telecom & IT||7.01||14.44||11.94||8.5||5.98||11.55||14.04||18.89||11.46|
Top Canadian Dividend ETFs – Additional Analysis
To make it easier to compare the different dividend ETFs, I have put together a table for additional analysis. It’s interesting to see that all nine dividend ETFs have different top holding with very different percentage exposure. XDIV is the newest dividend ETF out of all nine listed below with an inception date of June 7, 2017.
|ETF||Yield||5 Year Return||MER||Distribution Frequency||Net Assets||Holdings||Top Holding||Top Holding %||Inception Date|
|DGRC||2.12||9.56% (3 Yrs)||0.21||Quarterly||$407.9M||50||Thomson Reuters (TRI.TO)||5.58||09-19-2017|
|VDY||3.82||10.32||0.21||Monthly||$1.2B||39||Royal Bank (RY.TO)||14.09||01-011-2012|
|XDIV||3.94||8.44 (3 Yrs)||0.11||Monthly||$457M||23||CIBC (CM.TO||9.65||06-07-2017|
Some thoughts on Canadian Dividend ETFs
- All of the listed Canadian dividend ETFs have different stock selection criteria, hence they hold a different number of stocks with slightly different top 10 holdings.
- The five year returns for these top Canadian dividend ETFs very significantly. XDV has the best 5 year performance at 10.30% while XIU had the worst 6 year performance at 5.68%. It’s interesting to note that XIU holds Shopify as the top holding which should provide some good performance in the past 5 years.
- For the most part, these top Canadian dividend ETFs have similar dividend yield, with the exception of DGRC which has a low yield of 2.12%
- Previously we had included DXM, First Asset Morningstar Canada Dividend Target 30 Index ETF, as one of the best Canadian dividend ETFs but DXM has disappeared. This is a danger of holding one of the smaller ETFs since companies can close down ETFs from time to time, just like companies can decide to close down mutual funds.
- VDY’s top 10 holdings make up 70% of the entire fund assets so it is highly concentrated to the top 10 holdings and perhaps not as diversified as other dividend ETFs.
- CDZ, PDC, and XDV relatively high MER compared to the rest of the dividend ETFs.
- I would be a bit concerned holding CDZ and dubbing it as the top Canadian dividend ETF. Why? Because CDZ has some questionable top 10 holdings. CDZ’s top 10 holdings are drastically different than most of the other Canadian dividend ETFs I have compared in this article.
- Interestingly, none of these Canadian dividend ETFs hold a large percentage of Health Care stocks. CDZ is the only ETF that holds the largest percentage of stocks in Health Care at 1.93%. I suppose it’s because there aren’t too many Health Care companies here in Canada.
- It’s interesting to note that DGRC holds 0% in utilities. As a dividend investor, I think holding a small portion of utility dividend paying stocks is important.
- VDY, XDIV, PDC, and XDV hold over 50% stocks in the financial sector. This is a bit surprising given that the S&P/TSX Composite Index only has about 28% exposure in the financial sector. In other words, VDY, XDIV, PDC, and XDV hold many of the Canadian banks and insurance stocks. Dividends from Canadian banks are generally safe.
- XEI has over 30% in the Canadian Energy sector, which I think is a bit too high for my liking.
- If you are looking to create a spreadsheet to track all your ETF investments, take a look at my Google Spreadsheet template for ETFs.
Which dividend ETFs would I purchase?
If I were to purchase one of these top Canadian dividend ETFs, which one would I purchase?
That’s a tough question to answer. After evaluating different parameters I would purchase between XEI or XIU based on the following reasons.
- Low MER for both XEI and XIU.
- XEI has one of the highest yields and holds 75 securities. Although the top 10 holdings are dominated by banks, energy, pipeline, and telecommunications and take up over 45% of the fund assets, holding 75 securities does provide quite a bit of diversification. If your goal is yield, then XEI may be a good choice.
- XIU has the lowest MER with the lowest yield of all 7 top Canadian dividend ETFs. But it also has the highest five year return out of all the dividend ETFs compared. XIU does track closely with the TSX composite index. Therefore, if you want an ETF that tracks the Canadian market while focuses on both dividend income and total return, XIU may be one of the best Canadian dividend ETFs to hold in your portfolio.
Note: I am not an investment professional and I am not a financial advisor. This blog post represents my opinion and not an advice/recommendation. Therefore, please make your own investment decisions at your risk.
Why don’t we own any of the top Canadian dividend ETFs?
Dividend ETFs offer many benefits. Isn’t it easier to just purchase dividend ETFs instead of purchasing individual dividend stocks? Why don’t we own any of the top Canadian dividend ETFs that I just mentioned above? Well, here are my reasons why we don’t own Canadian dividend ETFs in our dividend portfolio.
- All of the dividend ETFs have different selection criteria. This results in very different dividend stock selections. Take VDY for example, if we own only one dividend ETF, do we really want to hold 14% of our portfolio in Royal Bank? Similarly, I have no desire of owning the likes of Gibson Energy, Keyera, or Quebecor, so I wouldn’t want to hold an ETF that has these stocks as one of the top 10 holdings.
- What if I want to have a heavier exposure to consumer staples or other sectors than the dividend ETF has selected? CDZ has a high exposure to consumer staples, but I would be paying a much higher MER. It would be easier to simply purchase individual dividend stocks and control my portfolio’s sector weighting myself.
- With dividend ETFs, it is difficult to estimate the monthly distribution amount. I like to be able to estimate how much dividend income I will receive. This is espeically important when we eventually live off dividends. Having a predictable dividend income provides a peace of mind, I think.
- I need to pay management fees while holding ETFs. This is much different than owning individual dividend stocks. With individual dividend stocks, I am only paying for the initial commission fees when I make purchases. Say I have a portfolio of $500,000 and I make 50 purchases. With Questrade, each trade costs $4.95, so 50 trades would cost me $247.50 to set up the portfolio. Once the portfolio is set up, I would not touch it. Say I hold XIU with a market value of $500,000. Although Questrade offers free ETF purchases, each year I would be paying 0.18% of management fee, or $900. It’s not a lot of money to pay given a market value of $500,000. But it is $900 more than what I have to pay if I were to hold only individual dividend stocks. For commission free trading, you might want to check out Wealthsimple Trade. Take a read of my Questrade vs. Wealthsimple Trade review & comparison.
- Finally, with a portfolio comprises mostly individual dividend stocks, I have control over on whether I want to sell or buy stocks. With a dividend ETF, if a stock falls off the selection criteria, the stock would not be part of the ETF. I have absolutely no say on whether to continue to hold the stock or not. Essentially by owning individual dividend stocks, I am in control of my own portfolio. I get to decide which stock to own and its weighting in my portfolio. I also get to decide whether I would enroll in DRIP or not. Many Canadian dividend paying companies do provide discounts when you are enrolled in DRIP, so I would take advantage of cost saving (Note: if you’re DRIPing through a discount broker via synthetic DRIP, check the policy. Not every discount broker will honour the DRIPing discount).
- I like having controls, so I prefer owning like the Top 10 Canadian Dividend Stocks. Owning individual stocks gives me more control and allows for more predictable dividend income. It’s nice to know exactly how much dividend income we’ll be receiving each month.
- Similarly, while Canadian bank ETFs are great, I think it is far better to hold individual Canadian bank shares rather than relying on a sector specific ETF.
Dividend ETFs offer far better diversification and still provide solid income distribution. But not all dividend ETFs are created equal. If you decide to own dividend ETFs, definitely do your homework. I hope my analysis of top Canadian dividend ETFs was helpful.
For Mrs. T and I, we believe owning individual dividend stocks is a better approach than owning dividend ETFs. Owning individual dividend stocks allows us to have more control over our portfolio and save money in the long run. If we want asset and geographical diversification, we can hold index ETFs like VCN or XAW for that purpose.
As a Canadian dividend investor, I am staying away from Canadian dividend ETFs. I’d rather own one of the Best Canadian dividend stocks.
If you are looking for income, one of the best preferred share ETFs might be an option, if you are OK forgo potential returns.