Many readers have asked how I feel about dividend ETFs and what are the top Canadian dividend ETFs available in the market today. Mostly, is there a reason why we don’t utilize Canadian dividend ETFs to build our dividend portfolio?
While we deploy a hybrid strategy by investing in both dividend stocks and index ETFs, it’s a well-known fact that we don’t own any Canadian dividend ETFs. We only hold broad market index ETFs like XAW for geographical and asset diversification purposes.
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?
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. Which one of the Canadian dividend ETFs comes 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 extent 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: 3.74%
- Distribution: monthly
- Holdings: 39
- Net Assets: $1.43B
- 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), Canadian Natural Resources (CNQ.TO), TC Energy (TRP.TO), BCE Inc. (BCE.TO), Nutrien (NTR.TO)
- Holding Breakdown: 58.3% Financials, 22.7% Oil & Gas, 8.8% Telecommunications, 5.8% Utilities, 3.9% Basic Materials, 0.2% Industrials, 0.2% Real Estate, 0.1% Consumer Services.
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: 4.1%
- Distribution: monthly
- Holdings: 44
- Net Assets: $878.49M
- Top 10 Holdings: Bank of Nova Scotia (BNS.TO), Royal Bank (RY.TO), TD (TD.TO), Enbridge (ENB.TO), Bank of Montreal (BMO.TO), Canadian Natural Resources (CNQ.TO), Manulife (MFC.TO), CIBC (CM.TO), Sun Life Financial (SLF.TO), TC Energy (TRP.TO)
- Holding Breakdown: 53.6% Financials, 20.12% Energy, 11.21 Telecommunication, 9.32% Utilities, 3.217% Real Estate, 2.06% Consumer Discretionary, 0.28% Health Care, 0.24% Materials.
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: 3.89%
- Distribution: monthly
- Holdings: 51 holdings
- Net Assets: $813.3M
- Top 10 Holdings: Bank of Nova Scotia (BNS.TO), Royal Bank (RY.TO), TD (TD.TO), Enbridge (ENB.TO), BCE Inc (BEC.TO), , CIBC (CM.TO), CIBC (CM.TO), Manulife (MFC.TO), Telus (T.TO), Canadian National Railway (CNR.TO), Bank of Montreal (BMO.TO)
- Holding Breakdown: 40.59% Financials, 13.70% Energy, 12.32% Utilities, 11.63% Communication, 8.09% Industrials, 6.99% Materials, 4.21% Consumer Staples, 2.15% 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: 4%
- Distribution: monthly
- Holdings: 29
- Net Assets: $1,895.13M
- Top 10 Holdings: CIBC (CM.TO), Bank of Montreal (BMO.TO), Royal Bank (RY.TO), Canadian Tire (CTC.A), Bank of Nova Scotia (BNS.TO), Labrador Iron Ore (LIF.TO), BCE (BCE.TO), TD (TD.TO), TC Energy (TRP.TO), National Bank (NA.TO)
- Holding Breakdown: 56.67% Financials, 11.31% Communication, 10.98% Utilities, 6.2% Energy, 6.01% Consumer Discretionary, 5.75% Materials, 2.40% Industrials, 0.369% Cash.
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: 3.15%
- Distribution: monthly
- Holdings: 86
- Net Assets: $1,021M
- Top 10 Holdings: Canadian Natural Resources (CNQ.TO), SmartCentre REIT (SRU.UN), Enbridge (ENB.TO), Keyera (KEY.TO), Pembina Pipeline (PPL.TO), Power Copr (POW.TO), CIBC (CM.TO), Fiera Capital Corp (FSZ.TO), BCE Inc (BCE.TO), Great West LifeCo (GWO.TO).
- Holding Breakdown: 29.47% Financials, 16.57% Energy, 11.50 % Real Estate, 10.13% Industrials, 9.68% Utilities, 6.91% Consumer Staples, 6.01% Communication, 4.11% Materials, 2.76% Consumer Discretionary, 1.81% Healthcare, 0.7% IT , 0.35% 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: 3.7%
- Distribution: monthly
- Holdings: 75
- Net Assets: $1,544.7M
- Top 10 Holdings: Canadian Natural Resources (CNQ.TO), Suncor (SU.TO), Royal Bank (RY.TO), TC Energy (TRP.TO), Enbridge (ENB.TO), TD (TD.TO), Bank of Nova Scotia (BNS.TO), BCE (BCE.TO), Telus (T.TO), Bank of Montreal (BMO.TO)
- Holding Breakdown: 31% Energy, 30.26% Financials, 13.98% Communication, 13.24% Utilities, 5.04% Real Estate, 2.57% Consumer Discretionary, 1.92% Materials, 0.87% Industrials, 0.51% Cash, 0.42 Health Care
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: 2.42%
- Distribution: quarterly
- Holdings: 60
- Net Assets: $11,122.3M
- Top 10 Holdings: Royal Bank (RY.TO), TD (TD.TO), Shopify (SHOP.TO), Bank of Nova Scotia (BNS.TO), Brookfield Asset Management (BAM.A), Enbridge (ENB.TO), Bank of Montreal (BMO.TO), Canadian National Railway (CNR.TO), Canadian Pacific Railway (CP.TO), CIBC (CM.TO),
- Holing Breakdown: 37.50% Financials, 14.49% Energy, 10.65% Industrials, 10.04% IT, 9.45% Materials, 5.63% Communication, 3.77% Consumer Staples, 3.73% Consumer Discretionary, 3.15% Utilities, 0.75% Real Estate, 0.52% Health Care, 0.3% Cash
DGRC – CI WidsomTree Canada Quality Dividend Growth Index ETF
CI WisdomTree Canada Quality Dividend Growth Index ETF seeks to track, to the extent 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 characteristics.
- MER: 0.21%
- Yield: 2.12%
- Distribution: quarterly
- Holdings: 49
- Net Assets: $417.93M
- Top 10 Holdings: Royal Bank (RY.TO), Magna (MG.TO), Canadian Pacific Railway (CP.TO), Rogers Communications (RCB.A), TD (TD.TO), Restaurant Brands (QSR.TO), IGM Financial (IGM.TO), Shaw Communications (SRJ.B), Canadian National Railway (CNR.TO), Thomson Reuters (TRI.TO)
- Holding Breakdown: 28.59% Financials, 24.95% Industrials, 12.62% Telecommunication, 17.01% Consumer Discretionary, 9.14% Materials, 6.33% Consumer Staples, 1.27% IT, 0.08% Healthcare
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: 3.49%
- Distribution: monthly
- Holdings: 23
- Net Assets: $646.2M
- Top 10 Holdings: Bank of Nova Scotia (BNS.TO), Royal Bank (RY.TO), TD (TD.TO), CIBC (CM.TO), TC Energy (TRP.TO), Nutrien (NTR.TO), Manulife (MFC.TO), Sun Life (SLF.TO), Fortis (FTS.TO), Power Copr (POW.TO)
- Holding Breakdown: 59.28% Financials, 11.36% Utilities, 10.11% Communication, 9.87% Energy, 8.16% Materials, 0.66% Cash.
Horizons Active CDN Dividend ETF (HAL)
The Horizons Active Cdn Dividend ETF is an actively managed ETF with a mandate to deliver long-term total returns consisting of regular dividend income and modest long-term capital growth. The fund seeks, to the best of its ability, to hedge its non-Canadian dollar currency exposure to the Canadian dollar.
The investment objective of the Horizons Active Cdn Dividend ETF (the “ETF”) is to seek long-term total returns consisting of regular dividend income and modest long-term capital growth.
- MER: 0.67%
- Yield: 3.07%
- Distribution: quarterly
- Net Assets: $99.6M
- Top 10 Holdings: Royal Bank (RY.TO), TD (TD.TO), Telus (T.TO), Summit Industrial REIT (SMU.UN), Imperial Oil (IMO.TO), Bank of Nova Sotia (BNS.TO), WSP Global (WSP.TO), Granite REIT (GRT.TO), Tourmaline Oil (TOU.TO), Canadian National Railway (CNR.TO)
- Holding Breakdown: 25.32% Energy, 23.6% Financials, 18.61% Industrials, 11.91% Real Estate, 6.07% Materials, 4.12% Comuncations, 4.10% Utilities, 2.88% Healthcare, 2.81% IT, 0.59% Cash
Top Canadian Dividend ETFs – Sector Diversification
Here is 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.
| Sectors | VDY | ZDV | XDV | CDZ | XEI | XIU | PDC | DGRC | XDIV | HAL |
| Consumers | 0.1 | 6.36 | 6.01 | 9.67 | 2.57 | 9.4 | 2.06 | 23.34 | 0 | 0 |
| Energy | 22.7 | 13.7 | 6.2 | 16.57 | 31 | 14.49 | 20.12 | 0 | 9.87 | 25.32 |
| Financials | 58.3 | 40.59 | 56.67 | 29.47 | 30.26 | 37.5 | 53.6 | 28.59 | 59.83 | 23.6 |
| Health Care | 0 | 0 | 0 | 1.81 | 0.42 | 0.52 | 0.28 | 0.08 | 0 | 2.88 |
| Industrials | 0.2 | 8.09 | 2.4 | 10.13 | 0.87 | 10.65 | 0 | 24.95 | 0 | 18.61 |
| Materials | 0 | 6.99 | 5.75 | 4.11 | 1.92 | 9.45 | 0.24 | 9.14 | 8.16 | 6.07 |
| Real Estate | 0.2 | 0 | 0 | 11.50 | 5.04 | 0.75 | 3.17 | 0 | 0 | 11.91 |
| Telecom & IT | 8.8 | 11.63 | 11.31 | 6.71 | 13.98 | 15.67 | 11.21 | 13.89 | 10.11 | 6.93 |
| Utilities | 5.8 | 12.32 | 10.98 | 9.68 | 13.24 | 3.15 | 9.32 | 0 | 11.36 | 4.1 |
| Cash | 0 | 0 | 0.68 | 0.35 | 0.51 | 0.3 | 0.28 | 0 | 0.66 | 0.59 |
However, it is interesting to see the likes of VDY, XDV, PDC, and XDIV are very financials heavy. I found it very interesting that DGRC has no exposure to the utility sector at all when Canadian utility stocks offer a very stable and solid dividend yield.
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 dividend ETFs have different numbers of holding and the top holdings are currently dominated by one of the Canadian banks or Canadian Natural Resources.
| ETF | Yield | 5 Year Return | MER | Distribution Frequency | Net Assets | Holdings | Top Holding |
| VDY | 3.74 | 9.8 | 0.21 | Monthly | $1.43B | 39 | Royal Bank (RY.TO) |
| ZDV | 3.89 | 7.94 | 0.39 | Monthly | $813.3M | 51 | Bank of Nova Scotia (BNS.TO) |
| XDV | 4 | 9.05 | 0.55 | Monthly | $1.9B | 29 | CIBC (CM.TO) |
| CDZ | 3.15 | 10.32 | 0.66 | Monthly | $1.02B | 86 | Canadian Natural Resources (CNQ.TO) |
| XEI | 3.7 | 8.53 | 0.22 | Monthly | $1.5B | 75 | Canadian Natural Resources (CNQ.TO) |
| XIU | 2.42 | 10.67 | 0.18 | Quarterly | $11.1B | 60 | Royal Bank (RY.tO) |
| PDC | 4.1 | 8.40 | 0.56 | Monthly | $878.5M | 44 | Bank of Nova Scotia (BNS.TO) |
| DGRC | 2.12 | 9.54 (4 years) | 0.21 | Quarterly | $417.9M | 49 | Royal Bank (RY.TO) |
| XDIV | 3.49 | 15.51 (3 years) | 0.11 | Monthly | $699.9M | 23 | Bank of Nova Scotia (BNS.TO) |
| HAL | 3.07 | 9.25 | 0.67 | Quarterly | $99.6M | ? | Royal Bank (RY.TO) |
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 vary significantly. XIU has the best 5 year performance at 10.67% followed closely by CDZ at 10.32%. Interestingly, CDZ’s MER is almost 0.5% higher than XIU.
- For the most part, these top Canadian dividend ETFs have similar dividend yields, with the exception of DGRC which has a low yield of 2.12%
- 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. On the other hand, although XDV only holds 29 stocks, the top 10 holdings only make up around 56% of the overall holding exposure so I’d say XDV is not as top 10 heavy compared to VDY.
- CDZ, PDC, XDV, and HAL all have relatively high MER compared to the rest of the dividend ETFs.
- I personally would question XDV’s holding of Labrador Iron Ore at 4.8% of the ETF. Due to iron ore price, Labrador Iron Ore’s dividend yield can vary drastically.
- VDY, XDV, PDC and XDIV all 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. Having said that as we saw throughout the pandemic, dividends from Canadian banks and Canadian insurance companies are generally safe.
- 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 1.81%. I suppose it’s because there aren’t too many Health Care companies here in Canada.
- 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. Personally, 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 which provides good diversification. If your goal is yield with decent diversification, then XEI may be a good choice.
- XIU has the lowest MER with a decent yield of 2.4%, which is the second lowest yield among these best Canadian dividend ETFs. XIU tracks closely with the TSX composite index. Therefore, if you want an ETF that tracks the Canadian market while focusing on both dividend income and total return, XIU may be one of the best Canadian dividend ETFs to hold in your portfolio.
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 around 14% of our portfolio in Royal Bank? Similarly, I personally wouldn’t hold dividend paying stocks like Labrador Iron Ore or Tourmaline Oil.
- What if I want to have heavier exposure to consumer staples or other sectors than the dividend ETF has selected? It would be easier to simply purchase individual dividend stocks and control my portfolio’s sector weighting myself and not pay the MER fees altogether.
- 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 especially important when we eventually live off dividends. Having a predictable dividend income provides peace of mind.
- I like having controls, so I prefer owning the Best Canadian Dividend Stocks. Owning individual stocks gives me more control and allows for a more predictable dividend income. It’s nice to know exactly how much dividend income we’ll be receiving each month.
- 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 (or $0 if you trade using WealthSimple Trade or National Bank Direct Brokerage. 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 the 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.
- Finally, with a portfolio comprised 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 weight 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).
- 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
Canadian Dividend ETFs offer far better diversification and still provide solid income. But not all dividend ETFs are created equal. If you decide to own one of these Canadian 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 use international index ETFs like VCN or XAW.
Now some investors may consider using covered call ETFs to generate more dividend income. Is it a good idea? I think this depends on many factors.
If you are looking for income, one of the best preferred share ETFs might be an option, if you are OK forgoing potential returns. For income, you may also want to consider one of the best Canadian REIT ETFs.
