Top Canadian Dividend ETFs – Why we don’t own them

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 56 individual dividend stocks and 2 index ETFs. 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: 0.22%
  • Yield: 5.52%
  • Distribution: monthly
  • Holdings: 51
  • Net Assets: $548.6M
  • Top 10 Holdings: Royal Bank (RY.TO), TD (TD.TO), Enbridge (ENB.TO), Bank of Nova Scotia (BNS.TO), TC Energy Corp (TRP.TO), Bank of Montreal (BMO.TO), BCE (BCE.TO), CIBC (CM.TO), Manulife (MFC.TO), Suncor (SU.TO), Sun Life Financial (SLF.TO), Telus (T.TO), Canadian Natural Resources (CNQ.TO), Nutrient (NTR.TO), National Bank (NA.TO)
  • Holding Breakdown: 56.7% Financials, 27.1% Oil & Gas, 9.4% Telecommunications, 3.1% Basic Materials, 2.9% Utilities, 0.5% Industrials, 0.3% Consumer Services.
Top Canadian dividend ETFs - VDY

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: 0.38%
  • Yield: 5.43%
  • Distribution: monthly
  • Holdings: 52 holdings
  • Net Assets: $452.38M
  • Top 10 Holdings: Sun Life Financial (SLF.TO), Power Corp (POW.TO), Manulife Financial (MFC.TO), CIBC (CM.TO), TD (TD.TO), Bank of Nova Scotia (BNS.TO), Nutrien (NTR.TO), Bank of Montreal (BMO.TO), Royal Bank (RY.TO), BCE (BCE.TO)
  • Holding Breakdown: 34.96% Financials, 16.53% Utilities, 13.89% Energy, 11.48% Consumer Services, 7.36% Industrials, 6.68% Consumer Discretionary, 2.91% Materials, 2.54% Consumer Staples, 2.12% Real Estate, 0.84% IT.
Top Canadian dividend ETFs - ZDV

XDV – iShares Canadian Select Dividend Index ETF

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: 4.51%
  • Distribution: monthly
  • Holdings: 30
  • Net Assets: $1,195.18M
  • Top 10 Holdings: CIBC (CM.TO), Canadian Tire (CTC.A), Royal Bank (RY.TO), Bank of Montreal (BMO.TO), Bank of Nova Scotia (BNS.TO), TC Energy Corp (TRP.TO), BCE (BCE.TO), TD (TD.TO), National Bank (NA.TO), Emera (EMA.TO)
  • Holding Breakdown: 58.8% Financials, 11.66% Utilities, 10.69% Communication, 6.72% Consumer Discretionary, 6.11% Energy, 4.02% Industrials, 1.69% Materials, 0.32% Cash.
Top Canadian dividend ETFs - XDV
Top Canadian dividend ETFs - XDV

XEI – iShares Core S&P/TSX Composite High Dividend Index ETF

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: 5.11%
  • Distribution: monthly
  • Holdings: 75
  • Net Assets: $634,33M
  • Top 10 Holdings: TC Energy Corp (TRP.TO), Canadian Natural Resources (CNQ.TO), Enbridge (ENB.TO), Royal Bank (RY.TO), Telus (T.TO), Pembina Pipeline (PPL.TO), TD (TD.TO), Bank of Nova Scotia (BNS.TO), BCE (BCE.TO), Nutrien (NTR.TO)
  • Holding Breakdown: 31.08% Energy, 29.43% Financials, 13.64% Utilities, 11.34% Communication, 7.2% Real Estate, 4.88% Materials, 1.43% Industrials, 0.46% Health Care, 0.31% Cash, 0.23% Consumer Staples
Top Canadian dividend ETFs - XEI
Top Canadian dividend ETFs - XEI

CDZ – iShares S&P/TSX Canadian Dividend Aristocrats Index ETF

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: 3.68%
  • Distribution: monthly
  • Holdings: 81
  • Net Assets: $775,55M
  • Top 10 Holdings: TransAlta Renewable (RNW.TO), Fiera Capital Corp (FSZ.TO), TransContinential (TCL.A), Enbridge (ENB.TO), North West Company (NWC.TO), Innergrex Renewable (INE.TO), Granite REIT (GRT.UN), BCE (BCE.TO), CIBC (CM.TO), Capital Power Corp (CPX.TO)
  • Holding Breakdown:  23.70% Financials, 15.79% Utilities, 13.51% Industrials, 12.51% Real Estate, 9.84% Energy, 8.49% Consumer Staples, 6.18% Communication, 4.59% Materials, 2.54% Consumer Discretionary, 1.32% Healthcare
Top Canadian dividend ETFs - CDZ
Top Canadian dividend ETFs - CDZ

XIU – iShares S&P/TSX 60 Index ETF

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: 3.29%
  • Distribution: quarterly
  • Holdings: 60
  • Net Assets: $9,730.53M
  • Top 10 Holdings: Shopify (SHOP.TO), Royal Bank (RY.TO), TD (TD.TO), Canadian National Railway (CNR.TO), Enbridge (ENB.TO), Bank of Nova Scotia (BNS.TO), Barrick Gold (ABX.TO), Brookfield Asset Management (BAM.A), TC Energy Corp (TRP.TO), Canadian Pacific Railway (CP.TO)
  • Holing Breakdown: 31.15% Financials, 13.95% Energy, 13.35% Materials, 11.38% IT, 10.97% Industrials, 6.05% Communication, 4.37% Consumer Staples, 3.62% Consumer Discretionary, 3.54% Utilities, 0.75% Real Estate.
Top Canadian Dividend ETFs - XIU
Top Canadian Dividend ETFs - XIU

DXM – First Asset Morningstar Canada Dividend Target 30 Index ETF

CI First Asset Morningstar Canada Dividend Target 30 Index ETF offers investors a way to gain exposure to the most fundamentally sound dividend paying stocks in Canada by replicating, to the extent possible, the Morningstar Canada Target Dividend Index. DXM invests in equity securities of the largest and most liquid Canadian stocks based upon Morningstar’s proprietary research. The fund is designed to provide diversified exposure to Canadian dividend paying companies.

  • MER: 0.60%
  • Yield: 4.30%
  • Distribution: quarterly
  • Holdings: 30
  • Net Assets: $11,178,98M
  • Top 10 Holdings: Gibson Energy (GEI.TO), AltaGas (ALA.TO), CI Financial (CIX.TO), Northland Power (NPI.TO), Sun Life Financial (SLF.TO), Great West LifeCo (GWO.TO), Quebecor Inc (QBR.B), Keyera (KEY.TO), TC Energy Corp (TRP.TO), Shaw Communications (SJR.B)
  • Holding Breakdown: 26.92% Financials, 24.22% Utilities, 20.03% Telecommunication, 16.45% Energy, 9.11% Real Estate, 3.27% Industrials.
Top Canadian Dividend ETFs - DXM
Top Canadian Dividend ETFs - DXM

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: 0.55%
  • Yield: 5.78%
  • Distribution: monthly
  • Holdings: 41 holdings
  • Net Assets: $633.38M
  • Top 10 Holdings: TD (TD.TO), Bank of Nova Scotia (BNS.TO), TC Energy Corp (TRP.TO), BCE (BCE.TO), Enbridge (ENB.TO), Power Corp (POW.TO), Bank of Montreal (BMO.TO), CIBC (CM.TO), Brookfield Infrastrcture Partners (BIP.U), Telus (T.TO)
  • Holding Breakdown: 32.68% Financials, 21.80% Energy, 20.08% Utilities, 15% Telecommunication, 8.08% Real Estate, 0.68% Industrials, 0.68% Health Care, 0.54% MAterials, 0.45% Consumer Staples
Top Canadian Dividend ETFs - PDC
Top Canadian Dividend ETFs - PDC

XDIV – iShares Core MSCI Canadian Quality Dividend Index ETF

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: 5.15%
  • Distribution: monthly
  • Holdings: 20 holdings
  • Net Assets: $239.34M
  • Top 10 Holdings: Manulife Financial (MFC.TO), Sun Life Financial (SLF.TO), CIBC (CM.TO), Royal Bank (RY.TO), Bank of Nova Scotia (BNS.TO), TC Energy Corp (TRP.TO), Fortis (FTS.TO), Pembina Pipeline (PPL.TO), Power Corp (POW.TO), Shaw Communications (SJR.B)
  • Holding Breakdown: 56.55% Financials, 17.88% Energy, 15.60% Utilities, 9.67% Communication, 0.31% Cash.
Top Canadian Dividend ETF - XDIV
Top Canadian Dividend ETF - XDIV

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.

 CDZDXMPDCVDYXDIVXDVXEIXIUZDV
Consumers11.0300.450.306.720.237.9920.7
Energy9.8416.4521.827.117.886.1131.0813.9513.89
Financials23.726.9232.6856.756.5558.829.4331.1534.96
Health Care1.3200.680000.4600
Industrials13.513.270.68004.021.4310.977.36
Materials4.5900.543.101.694.8813.352.91
Real Estate12.519.118.080007.20.752.12
Telecom & IT6.1820.0315.09.49.6710.6911.3417.430.84
Utilities15.7924.2220.082.915.6011.6613.643.5416.53
Cash00000.310.320.3100

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.

 Yield5 Year ReturnMERDistribution FrequencyNet AssetsHoldingsTop HoldingTop Holding %Inception Date
CDZ3.683.040.66Monthly775.55M81TrasAtla Renewabl (RNW.TO) 2.5709-08-2006
DXM4.32.680.60Quarterly11,178.98M30Gibson Energy (GEI.TO)3.6402-02-2012
PDC5.783.440.55Monthly633.38M41TD (TD.TO)8.0706-16-2011
VDY5.523.870.22Monthly548.6M51Royal Bank (RY.TO)14.6001-011-2012
XDIV5.150.37 (3 Yrs)0.11Monthly239.34M20Manulife Financial (MFC.TO)9.9406-07-2017
XDV4.513.040.55Monthly1,195.18M30CIBC (CM.TO)8.312-19-2005
XEI5.112.420.22Monthly634.33M75TC Energy Corp (TRP.TO)5.2104-12-2011
XIU3.295.680.18Quarterly9,730.53M60Shopify (SHOP.TO)7.7409-28-1999
ZDV5.432.330.38Monthly452.38M52Sun Life Financial (SLF.TO)3.3210-21-2011

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 are similar. They vary by around 1% or so. XIU is the exception with a five year return of 5.68%. This shouldn’t come as a surprise since XIU’s tracks S&P/TSX60 so some of these stocks, like Shoplify, do not pay dividends.
  • VDY and XIU have similar top 10 holdings. However, VDY’s top 10 holdings make up 70% of the entire fund assets. On the other hand, XIU’s top 10 holdings make up about 50% of the entire fund assets. VDY’s performance will be closely tied to the top 10 holdings.
  • CDZ, DXM, 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 1.32%.
  • VDY, XDIV, 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, and XDV hold many of the Canadian banks and insurance stocks. Dividends from Canadian banks are generally safe. But as interest rates stay quite low, Canadian banks and Canadian banks and insurance companies may face a tougher environment to increase their earnings. So it is possible that VDY, XDIV, and XDV to underperform compared to the rest of the dividend ETFs.
  • 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? Only 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.
  • Finally, with a portfolio consists of 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 be taking 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.

Final thoughts

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.

In other words, as a Canadian dividend investor, I am staying away from Canadian dividend ETFs.

.

65 thoughts on “Top Canadian Dividend ETFs – Why we don’t own them”

  1. Great article Tawcan! Please let me know if my reasoning below is sound.

    I am young, and settling on buying an all-in-one Canadian dividend ETF, maybe a couple, instead of buying individual dividend stocks.

    This is because I don’t have the time or motivation to research individual stocks and companies and predict when they will fall off. I came across a stat in my business class that the average businesses’ tenure on the Fortune 500 List has decreased from 30-20 years from 1965-1990, and will be 14 years by 2026. I understand many big companies will last, but many also won’t.

    A dividend ETF, If I am understanding correctly will be able to drop companies that fall, and add the ones that replace them or grow, whereas if I pick individual dividend stocks I must do this on my own, as it happens, or ideally before these shifts happen, which is very hard if not impossible to predict. I would rather have a rule-based automatic restructuring of holdings, which guarantees I don’t hold failing companies, one I can buy and forget about. Of course, this reasoning is assuming the dividend ETF restructures its holdings on a somewhat frequent basis.

    Is there anything faulty in my reasoning? I see where individual stock picking could be advantageous, but for me, if the above is correct, I think dividend ETFs are for me.

    Continue the great work and I look forward to your response.

    Jake 🙂

    Reply
      • Hey Tawcan!

        I have a significant amount of my portfolio in XEQT for my couch potato index investment. But I was intrigued by dividends, initially through Million Dollar Journey.

        I’m looking to invest in dividends very soon, and I’m not the most term-savvy/experienced so I want to make sure I’m doing what’s right for me, with the small amounts, but important money I have.

        Is there a specific metric or term I should look for to determine how often a ETF reassesses its holdings? This seems to be the most important metric, besides of course how the ETF picks stocks – which also confuses me (which one is best picking strategy!? that’s all I need to know! haha).

        Anyways, the more regular these reassessments the better I imagine, as I simply want to track the best dividend stocks, and not hold faltering companies, which if I’m correct, I would hold less ideal companies if I picked individual dividend stocks on my own, (given I don’t have the resources/time/motivation to be checking performance regularly enough).

        I really appreciate you taking the time to respond and generously offering your knowledge.

        Jake 🙂

        Reply
  2. I have been a big fan of XEI for many years. And if you don’t have the time and patience to pick stocks, it’s a very easy way to get a decent stream of monthly income. But in general I pick my own stocks.

    It’s clear that some of these ETF entries are just there to pad a fund companies offerings. You can basically replicate VDY by buying two banks, an energy and a telco. That’s just embarrassing. If one is charging a management fee, please at least provide some expertise and value.

    I do like to pore over the holding lists for the different ETFs, for ideas. If I see a company represented in a bunch of the companies’ lists, it makes me wonder why I don’t own it. So I go and do some research.

    Reply
  3. Hi Tawcan,
    First off great read. I really enjoyed your article.
    Secondly I am interested in your take on ZWC – BMO Canadian High Dividend Covered Call ETF.
    The dividend yield is quite good, it covers a large and diverse range of holdings.
    The MER is quite high but currently a MER of 0.72% vs. a yield of 7.86% seems pretty easy to swallow.
    I agree that vs. stocks you will be paying the management fee annually but it would be quite a stock portfolio that will pay ~6% dividend or more on average.
    Thanks,

    Reply
    • Thank you Burt.

      Covered calls just add another layer of complexity. You have to decide yourself whether utilizing covered calls is worth the extra fees or not.

      Reply

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