Top Canadian Dividend ETFs for 2018

Top Canadian Dividend ETFs 

What makes a great Exchange Traded Fund (ETF)?  What makes a great Canadian dividend Exchange Traded Fund?  What are the top Canadian dividend ETFs to own?

You’ve come to the right site and the right post.

Let’s back up the truck – what is an ETF?

An ETF (Exchange Traded Fund) is a diverse collection of assets (like a mutual fund) that trades on an exchange (like a stock does).  This makes an ETF a marketable security and for this reason, this trading capability, ETFs can experience price changes throughout the day as they are bought and sold.  ETFs typically have lower fees than mutual funds (although not always), which can make them an attractive alternative to mutual funds.

Based on my personal experiences over the last 10+ years as a serious investor, ETFs are easy to buy using a discount brokerage and offer a low-cost way to own dozens if not hundreds of stocks to diversify your portfolio.  Although you don’t need to buy equity ETFs, it is my belief that you’re FAR better off owning more equities than bonds over long investing periods.  The reason for this is rather simple:  if you want predictable returns you’re going to have to live with lower, long-term returns that offer this predictability.  If you want higher, long-term returns, you’re going to have to live with the short-term volatility that comes with higher risk equities.

If you’re just starting out your investing journey, you can learn more about ETFs here.

Before we get into my favourite Canadian dividend ETFs, here are some elements that make up a solid ETF:

Style – ETFs can track an index, follow an industry sector, be rules-based like some smart-beta funds are, or be much more.  For the most part, I prefer either plain vanilla, broad market equity indexed ETFs or dividend ETFs.  This is because the former provides market-like returns less skimpy money management fees.  Basically plain vanilla ETFs offer a set-and-forget investing approach.  Contribute money every month, quarter or annually and let it grow for the next 30-40 years.  Some examples of what I like in the Canadian market will follow in the paragraphs below.  The latter, those dividend ETFs, can provide income; tangible money you and I can use as we please while offering some long-term growth.  I avoid other types/styles of ETFs based on futures, hedges or swap agreements.  By and large those products tend to make the company offering those funds rich, not you.

Fees – Hopefully by now you know high money management fees kill portfolio values over time.  When it comes to fund fees in particular, my bias is, I try to keep the management expense ratio (MER) (the fee paid to the fund’s manager, as well as taxes and other costs) low for as long as possible.  That means I wouldn’t consider owning any ETF over an MER of about 0.50% – including any Canadian dividend ETF.  You should also be considering investing in products with fees that are lower than that.

Tracking error – In short, tracking error is the difference between the performance of the fund (the ETF) and its benchmark (it’s track).  I would advise you to look at the fund’s prospectus before you buy it and strive to own ETFs with low tracking errors.

Diversification – Along the same lines ‘Style’, you should be very mindful of the assets within an ETF before you buy it.  ETFs are not created equal – and that’s a good thing when it comes to returns.  For a quick example, I’ve been a huge fan of Canadian broad market ETFs like XIU, XIC, ZCN, VCN, along with others over the years.  XIU holds the largest 60 stocks in Canada.  XIU however has nowhere near the number of holdings that VCN has (214 at the time of this post) yet XIU has delivered stellar long-term returns.  Just because of the limited fund holdings, is XIU really an inferior product to VCN for our Canadian market?  Hardly.  Based on my personal experiences, diversification can be a great ally as a risk mitigation tactic against stock picking but that doesn’t mean it’s bulletproof.  Typically the larger the ETF equity holdings are, the better the chance you’ll own both stock duds and studs as well. More stock holdings does not automatically equate to better returns.

Tax efficiency – If you never intend to max out your TFSAs, RRSPs, kids’ RESPs, or other registered accounts then this is a non-issue for you.  For some investors however, who invest outside registered accounts (such as the aforementioned RRSPs, RRIFs, TFSAs, RESPs, LIRAs) like I do, then you need to consider the tax efficiency of your ETFs.  Be wary of ETFs that have lots of turnover by the fund manager (through buying and selling securities) – those funds are likely to result in more costs to you.  In taxable accounts, I would advise you to look at the fund’s prospectus before you buy it and strive to own ETFs that are as tax efficient as possible.

History – While past performance is never indicative of future results unfortunately history is all we have since nobody can predict the financial future with any accuracy.  I think owning funds that have an established history of > 3 years is generally smart.  While new ETF entrants are fine, ETF tactics can change by the company that runs the fund at will – so buyer beware of any ETF niche products.  This is yet another reason I believe sticking to plain vanilla funds or dividend ETFs that are easy to understand; something you can explain to a 10-year-old, will ultimately deliver more value to you as the long-term investor.

My top Canadian dividend ETFs

OK, now to the blogpost topic – what are some of the top Canadian dividend ETFs to consider for your portfolio?  Here you go!

All data and information is current at the time of this post.

ETF Index MER # Holdings Yield 3-Yr 5-Yr
Vanguard Canadian High Dividend Yield Index ETF (VDY) FTSE Canadian High Dividend Yield Index 0.22% 63 3.9% 8.83% n/a
BMO Canadian Dividend ETF (ZDV) Weighted yield of Canadian dividend paying stocks – a rules based methodology that considers the three year dividend growth rate, yield, and payout ratio to invest in Canadian equities 0.39% 51 4.4% 6.66% 5.59%
iShares Core S&P/TSX Composite High Dividend Index ETF (XEI) S&P/TSX Composite High Dividend Index 0.22% 75 4.7% 7.67% 5.73%
iShares S&P/TSX 60 Index ETF (XIU) S&P/TSX 60 Index 0.18% 60 2.7% 7.70% 9.52%

Vanguard Canadian High Dividend Yield Index ETF (VDY)

Vanguard Canada remains a low-cost ETF leader and Canadian investors have benefited from their direction in recent years – thanks Vanguard!   With a low MER, there are only two major downsides I see to this product.  One, the top-10 holdings dominate it.  (I’ve actually chosen to own all these top-10 VDY stocks directly in my portfolio but your mileage may vary.)  Two, the monthly distributions from this fund are a bit erratic.  Otherwise, I believe this fund is top consideration for income and long-term growth.  At the time of this post, since inception the fund has returned about 9%.  That’s pretty good for our Canadian market.

VDY

Image from Vanguard VDY.

BMO Canadian Dividend ETF (ZDV)

I think for all around performance, yield, cost and diversification, this Canadian dividend ETF remains top-notch.  Last time I checked the MER for this BMO ETF was about 0.39% (within my max 0.50% MER criteria for any ETF to bother owning).  The fund was also yielding over 4%.  Distributions are monthly and steady at about $0.063 per unit at the time of this post.

ZDV

Image from BMO ZDV.

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

This is one of my favourite Canadian dividend ETFs because of the low management fee (0.22% MER), high number of dividend holdings (75), and consistent yield over 4%.  Although like other top Canadian dividend ETFs, that own Canadian banks, energy, pipeline and telecommunication companies in their top-10 holdings, there are a number of consumer discretionary stocks and Real Estate Investment Trusts (REITs) that spice up this ETF among fund assets.  I consider this ETF an excellent candidate for the Canadian content of your income-oriented portfolio.

XEI

Image from iShares XEI.

iShares S&P/TSX 60 Index ETF (XIU)

This remains one of my favourite Canadian dividend ETFs because it’s also considered one of the best “plain vanilla” equity ETFs in Canada.  For a skimpy MER of 0.18%, you hold the largest 60 blue-chip companies in Canada.  Year after year, I consider this ETF arguably one of the best products you could own for the Canadian content in your portfolio; steady yield of about 3%, and long-term growth.

XIU

Image from iShares XIU.

Summary

There are certainly many other Canadian dividend ETFs to consider but these ones float to the top of my list for all the reasons I think some ETFs are great for most investors to own anyhow:

1.keep your fund fees low

2.consider funds that invest in many companies across many sectors (so you can downplay fear of individual stock selection)

3. leverage ETFs for transparency of holdings from the major institutions that offer these funds

4. take advantage of tax-efficiency as it relates to our Canadian dividend tax credit.

These funds will not only provide income but some modest capital appreciation over time.

Then again, with all these positives, you can always consider owning some of these stocks these big funds own directly – but that’s another blogpost or set of posts to discuss entirely!

In the coming weeks, I hope to post some of my favourite international and U.S. dividend ETFs for your portfolio.  Thanks for reading.

What are your top Canadian dividend ETFs?  Do you hold any and if so, which ones and why?  

More ETF reading:

How many ETFs should you own anyhow?

How can I diversify my TFSA using ETFs? 

How can I maximize the benefits of the TFSA?

Are there any simple, all-in-one ETFs I can own?

What other top ETFs should I consider owning?

My name is Mark Seed and I'm the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, we're inching closer to our ultimate goal - owning a 7-figure investment portfolio for semi-retirement. We're almost there! Subscribe and join the journey. Learn how I'm getting there and how you can get there too!

35 Responses to "Top Canadian Dividend ETFs for 2018"

  1. Anyone surprised, I’m not impressed with any of these ETF’s.
    1. Look at a 5 or 10 year chart of each and only XIU has had a slight price gain from the 2014 high
    2. The distribution history:
    :VDY from 2013 to 2017 Up 57.79%, but from 2014 to 2017 Dn 5.01%
    ZDV from 2013 to 2017 Dn 8.81%
    XEI from 2013 to 2017 Up 0.52%
    XIU from 2013 to 2017 Up 13.45%, BUT FROM 2011 TO 2017 Up 0.40%
    The charts and dividends of their top 10, from 2014, look much better (except for ENB price was Dn, but great Div Gth)

    Reply
    1. Agreed, I don’t care for any of the ETFs in the article. The only Canadian dividend ETF I’d consider is XDIV. Its history is brief but I like the yield (currently 4.80%), the low MER (0.11%) and the four distribution increases (without a decrease) since inception on June 7, 2017.

      Reply
      1. I considered XDIV for my list but even with the low MER, I simply didn’t feel it was diversified. I mean, the top-10 holdings are about 80% of the fund.
        Might as well own those stocks directly, and I do, most of them. That said for investors very wary of individual stock holdings then this is also a strong consideration but it didn’t float to the top.

        Bernie, I recall you don’t own any Canadian ETFs?

        https://www.blackrock.com/ca/individual/en/products/287823/ishares-core-msci-canadian-quality-dividend-index-etf-fund

        Reply
  2. Hello Mark,
    Thanks for your time and effort , I always enjoy reading your posts as it help me to learn new things about investing so I’m always juggling btw here and ccp Blog.
    I’m totally invested in 100% plain vanilla ccp portfolio but like i mentioned before that i’m kind of leaning toward having a portion of my portfolio in dividend etf/stock but after reading your post i compared VCN to the three etfs that you talked about and capital growth on VCN is way more then all of them specially XEI and ZDV they both lagged way behind VCN, so is this were the argument is between index investors vs dividend investors ? because if i do the math they both gain the same amount VCN in capital and XEI and ZDV in dividend so it’s true that if you’re in accumulation age dividends income won’t matter ?
    it’s just that i usually add a nice chunk of fresh money every beginning of the year and i was thinking this year to add either dividend paying stock or dividend etfs but seeing those charts it makes no sense to me to invest in dividend when i’m 18 years away from retirement no ?

    Gus

    Reply
    1. I learn from readers as well Gus.

      I know a portion of investors that are retired or semi-retired and they’ve done what you are considering – a mix of dividend/distribution-oriented ETFs and some ultra low-cost total return funds to strike a balance between “income now” and long-term growth. I’m theoretically doing the same right now except I own the stocks directly that XIU, VDY, XEI, etc. own.

      I see dividends and distributions as a subset of total return. They are then on a different side of a coin per se since you can’t have tons of income and capital growth, you kinda have to have one or the other or a blend.

      If you are reinvesting your dividends, then you are essentially taking a total return approach on a fund or stock. There is little value in taking dividends or distributions now, unless you a) need the cash or b) you are trying to be more strategic with your purchases. Obviously, if you take the CPP approach, you are not really caring about the market prices since the best market price is today’s price if you’re an indexer.

      At the end of the day how you invest is certainly up to you Gus but I know for us, a basket of dividend paying stocks in Canada and the U.S., supplemented with low-cost ETFs that invest in the U.S. is working for us and helping us realize our income goal for an early retirement. We are 56% of the way there.
      https://www.myownadvisor.ca/dividends/

      This approach may or may not work for others 🙂

      Thanks for being a fan.

      Reply
  3. I have never bought a dividend ETF in my life. I have purchased various total market, bond and pref ETFs throughout my investing learning curve but own just smallish positions in XAW and VFV for rest of the world exposure at present. My problem with these products are the higher costs, stagnant distribution growth and the fact you don’t participate in dividend increases when they’re announced and you also don’t benefit in stock splits.
    I own the top 7 constituents of VDY. No lifecos at the moment and don’t know if I will ever buy one. Not for me but I understand the simplicity of why one would want to buy one. Thanks for the list and post.

    Reply
    1. XAW and VFV are great low-cost funds for the international market and U.S. market respectively.

      I recall XAW is around 0.22% MER and although it won’t make my list of international dividend payers it is a great total return fund.

      VFV is a dirt cheap S&P 500 ETF for long-term capital growth. Smart call owning this one.

      Like other investors, I can appreciate why you don’t own Canadian dividend ETFs. I don’t either but these are at the top of my list for options for investors based on the reasons I wrote about. I own most of the top holdings of all these funds directly so I can participate in dividend increases and more. Lifecos grow their dividend as well and should benefit from higher interest rates.

      Thanks for being a fan.

      Reply
  4. That’s a good list of ETF’s.

    I like and own XDIV it has a low MER and great yield – as suggested by Bernie.

    I also own BMO ZWC and ZWU even though the MERs are high at .71 as they pay yields of 6.24%+. Since I am mostly retired @59 and living off my dividends the monthly yield is important to me.

    I’m now up to $38700 per year in dividends so I’m very happy.

    Reply
    1. Geez, impressive Marko – well done with the dividend income. I haven’t looked too much at ZWC nor ZWU – but I did find their MERs are rather high.

      Is there a reason you like the covered call ETFs? The yield is good though.

      Here are the top holdings of ZWC, most of them I own directly without paying a fee:

      4.03% BCE Inc. CA05534B7604 BCE 14,475,685
      3.88% Pembina Pipeline Inc CA7063271034 PPL 13,944,482
      3.74% Enbridge Inc. CA29250N1050 ENB 13,453,352
      3.71% Cdn Imperial Bk of Commrc CA1360691010 CM 13,349,315
      3.71% Inter Pipeline Ltd. CA45833V1094 IPL 13,344,297
      3.61% TELUS Corp. CA87971M1032 T 12,975,836
      3.50% Vermilion Energy Inc. CA9237251058 VET 12,579,372
      3.44% Nutrien Ltd CA67077M1086 NTR 12,377,774
      3.42% TransCanada Corp. CA89353D1078 TRP 12,300,523
      3.39% Great-West Life Company CA39138C1068 GWO 12,175,541

      Thanks for your contributions Marko – great to learn from others.
      Mark

      Reply
      1. Hey Mark – I like ETF’s for the ease of owning (selling and buying) and diversification.

        I’m only paying $2500 or so per year in fees. My wife’s portfolio of ZAG, XDIV and ZDG only costs her $366 per year. With a little more than $1.2M invested $2866 in fees is nominal.

        I’m not interested in owing individual stocks – to each their own 🙂

        I like BMO ZWU (ZWC as well) because it pays a 6.24% yield after the .71% MER is accounted for.

        Reply
  5. I personally own a fair amount of XIU and I’m amazed at how the ~3% dividend has kept up with the increasing price over the last few years. I really enjoy seeing those dividends roll in (speaking of which, isn’t the next dividend date for XIU in the next few days?) The only con for XIU is how heavily it’s weighted towards financials and energy. This skewed weighting makes it important to hold other ETFs (ideally US and International) to get exposure to more than those two sectors. Otherwise its great, plus its huge so there is a ton of liquidity.

    Reply
  6. Lloyd (58, retired (but farm a bit), married, rural MB) · Edit

    I can certainly see the thought behind using ETFs (especially for newer investors) but now that our portfolio is large enough to sufficiently diversify (in the eye of the beholder) at a reasonable cost, I’d rather not pay MERs. Similar to Mark, I generally hold many of the top tens anyways and now pay less than a hundred bucks a year in trading costs. I sure wish they were more prolific and available when I was starting out.

    Reply
    1. I think that’s where I evolved as well Lloyd. We’re fortunate to have our portfolio in the mid-6-figures now and if I can get the same/similar CDN content from my basket of stocks and pay no fee – why not?

      The U.S. market is a totally different beast and I think there are absolutely benefits in indexing the S&P 500 or owning a low-cost U.S. dividend ETF. So, I do!

      What do you think BMO, BNS and TD will do this week with their dividends?

      Reply
      1. Lloyd (58, retired (but farm a bit), married, rural MB) · Edit

        I use the TD DJIA e-series for my U.S. stuff and the Euro e-series for European exposure. I’m just not motivated or smart enough to hold foreign stocks directly and the e-series are so easy to work with as I am with TDDI.

        BNS (we own a bit) likely to increase (I’d bet a large double/double on it), BMO (we don’t own) and NA (we own a LOT!) likely to hold til next quarter. TD has traditionally been increasing once per year so I’d guess they will hold to that but I’d be thrilled to be wrong and see them go every second quarter. I’m fairly confident that they will have just as good reports as the others though.

        Reply
  7. Hi Mark,
    Thanks for sharing the information. Great job. I would prefer to own the individual stocks for the same reason mentioned by cannew, however, I feel that I do not have a large enough portfolio at the moment to purchase enough individual stocks for diversification. That is where I see the benefit of an ETF. As a guide what dollar amount would you suggest as a starting point to purchase individual shares over an ETF?

    Reply
    1. Lloyd (58, retired (but farm a bit), married, rural MB) · Edit

      No one has provided input so I’ll throw in my two cents worth. I

      t depends, but I’d start with looking at what companies you’re looking at owning. If you are going to emulate the ETFs that you might already have (i.e. owning the shares of the companies within the ETF) then look at the minimum required in order to DRIP at least one full share per distribution. I am assuming that the account will be held in an institution that only provides the synthetic-DRIP (whole shares only). If you’re in one that DRIPs fractions, then this obviously would not apply.

      Pick the companies you’d like to own, figure out the necessary shares required to get at least a whole share DRIP based on dividend/distribution paid and then figure out the costs. This would be the starting point for me to consider it.

      Note that there is nothing stopping a person from building to individual stock ownership over a period of time but I’d still want to have the minimum number of shares in order to DRIP a full share at distribution.

      That’s probably as clear as mud but it made sense as I typed it. 😉

      Reply
    2. Hey Kirk,

      Thanks for being a fan. Yeah, I probably won’t sell any dividend paying stocks unless a) they cut their dividends and/or b) I find better dividend paying stocks to own that have better and more established growth rates. Especially beyond the ones I own!

      I recall I wrote an article or two here about switching from ETFs to stocks; when to start buying stocks; here is my general thinking:
      https://www.myownadvisor.ca/reader-question-just-starting-help-needed/

      https://www.myownadvisor.ca/start-investing-dividend-paying-stocks/

      I can appreciate how you feel, I was there with you only a few years back. I can say I “graduated” from funds to stocks over time, that approach may or may not work for you depending upon your goals and investing behaviour. Also, there is really nothing stopping you from owning both, low-cost ETFs and some stocks, even one or two to start. I definitely started that way.

      The big benefits of ETFs are instant diversification (of stocks) at a low-cost. Over time though, as many DIY stock investors do in Canada, they tend to own some of the same stocks the big funds own directly but there are absolutely benefits of owning ETFs anyhow. I hope the article helped at least identify some good, lower cost dividend ETFs!

      Reply
  8. Hi there, I’m new to this site but find it quite interesting. I have a question about owning individual stocks vs. a ETF. If you were to hold the top 10 stocks in a ETF, would you do better monthly or quarterly dividend wise then owing a ETF? I am wondering since I can only afford to put $25.00 a month into my TFSA(direct investing with RBC). I am also doing $60/bi weekly into my RRSP to pay back my $25K RRSP Home Buyers Plan withdrawal. Right now I’m interested in either Canadian Aristocrats Dividend ETF or a simple low, cost Vanguard ETF fund like VRE. Thank you.

    Reply
    1. Hey Gary,

      Thanks for being a new fan.

      I can’t speak for you but given our CDN market – focused on banks, financials and energy companies that comprise 60% of our economy, I’m inclined (and do) hold those stocks directly for income (dividends) and long-term growth.

      You can see an example in ETF VDY.

      Depending on your objectives (income, growth; ability to stick to your plan, etc.) a CDN dividend ETF, VRE for REITs and a U.S. dividend ETFs could likely serve investors very well long-term. At the end of the day, it’s all about your goals and objectives – and finding the right products to get there. All the best.

      Reply
  9. Mark,

    Great site. Started with the Canadian couch potato investment portfolio in 2016.
    I have $ 126,000 now, luckily my small business has been profitable since its inception 5 years ago.

    I have invested $ 37,000 in VGRO
    Just sold $ 64,000 in VXC( which was up 18 % since I invested ) and will be purchasing VDY for HY dividend instead.
    The Balance $ 25,000 is in VAB (BOND FUND ) down -2%

    I am 61, and don’t plan on retiring and that part time at 70.

    Wondering if I should just sell the VAB and invest that into VGRO to balance things out for appreciation/high yield.

    Best Pierre

    Reply
    1. Great work. I’ve known Dan (CCP site) for many years – he’s one of the good guys really trying to help Canadians invest better/smarter.

      Ultimately what you sell vs. hold is your choice and depends on many factors including your risk tolerance, investing timeline, etc.

      If holding VAB has you guessing a great deal about portfolio re-balancing, a simple all-in-one fund like VGRO might just be what you are looking for – especially if you’re looking to add over the next 9 years and work part-time around 70. You’ve got a few years of growth ahead potentially.

      Just a thought, not advice! 🙂

      Reply
  10. I don’t feel like I am at a stage yet to invest in single stocks and prefer the simplicity and rebalancing of the VGRO. Having said that perhaps in the future will be different.

    Reply
    1. Hey Pierre,

      I think the VGRO or other “GROs” are great funds for long-term growth and simplicity. Save, invest in a “GRO”, rinse and repeat for 10-20 years. Hard to go wrong with any of those over higher cost mutual funds charging 2%!

      Reply

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