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ETFs and Funds

5 Top Dividend ETFs in Canada

Investing in Canadian dividend paying stocks has never been easier. To do this you can either buy one or two dozen individual stocks or you can buy an ETF that already owns a basket of dividend paying companies.

Investing in Canadian dividend paying stocks has never been easier. To do this you can either buy one or two dozen individual stocks or you can buy an ETF that already owns a basket of dividend paying companies.

Of course, the convenience of buying an ETF comes with a small price. Between 10 and 60bps, the management expenses paid for simplified access do compound over time. Still, for many the ETF option makes the most sense.

Many people don’t have time to track many individual stocks. Some investors might have little to invest. Others might not even know what to look for when choosing an individual stock. For these people, an ETF might be the best way to invest in dividend stocks.

Personally, I like the way a broadly diversified dividend ETF can help me mitigate the risk of problems with any one individual company. An ETF also allows me to make asset allocation changes and new contributions with relatively few trades. Also, those who work in the investments industry know that ETFs remain off the compliance radar providing easier buy/sell execution.

I still bolt on a few individual dividend stocks here and there to enhance certain exposures. But ETFs remains the core to my dividend portfolio.

Below I list out five of the top dividend ETFs in Canada. I first provide high-level summary stats and then go deeper into each individual portfolio. Finally, I provide my conclusions at the end.

Summary Stats

BMO Canadian Dividend ETF (ZDV)

This ETF seeks to replicate the performance, net of expenses, of the Dow Jones Canada Select Dividend Index. The index is comprised of 30 of the highest yielding, dividend-paying companies in the Dow Jones Canada Total Market Index, as selected by Dow Jones using a rules-based methodology including an analysis of dividend growth, yield and average payout ratio.

Top 10 Holdings (30.00%)

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

This ETF seeks to replicate the performance, net of expenses, of the S&P/TSX Canadian Dividend Aristocrats index. The index consists of common stocks or income trusts listed on the Toronto Stock Exchange which are constituents of the S&P Canada Broad Market index (BMI). The security must have increased ordinary cash dividends every year for at least five consecutive years, and the float-adjusted market capitalization of the security, at the time of the review, must be at least C$ 300 million.

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Top 10 Holdings (19.95%)

iShares Canadian Select Dividend Index ETF (XDV)

This ETF seeks to replicate the performance, net of expenses, of the Dow Jones Canada Select Dividend Index. The index is comprised of 30 of the highest yielding, dividend-paying companies in the Dow Jones Canada Total Market Index, as selected by Dow Jones using a rules-based methodology including an analysis of dividend growth, yield and average payout ratio.

Top 10 Holdings (58.37%)

Vanguard FTSE Canadian High Dividend Yield Index ETF (VDY)

This ETF seeks to track, to the extent reasonably possible and before fees and expenses, 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. Currently, this ETF seeks to track the FTSE Canada High Dividend Yield Index. It invests primarily in common stocks of Canadian companies that pay dividends.

Top 10 Holdings (73.68%)

iShares Core MSCI Canadian Quality Dividend Index ETF (XDIV)

This ETF seeks to replicate, net of expenses, the performance of the MSCI Canada High Dividend Yield 10% Security Capped Index. The MSCI Canada High Dividend Yield 10% Security Capped Index targets companies from the Parent Index (excluding REITs) with high dividend income and quality characteristics and includes companies that have higher than average dividend yields that are expected to be both sustainable and persistent.

Top 10 Holdings (77.75%)

Conclusions

For your convenience, I’ve re-displayed the summary stats below:

Judging by the sector exposures, XDV, VDY and XDIV provide more concentrated exposure to financials. VDY provides concentrated exposure to both financials and energy. If you desire an ETF more focused on financials and energy, VDY and XDIV are probably your best choice because of their exceptionally low fees.

The remaining dividend ETFs – ZDV and CDZ – provide a more diversified exposure to Canadian dividend paying stocks across a wider range of sectors. Although ZDV is a bit more concentrated in financials and energy, this provides it a yield boost. Finally, ZDV also charges a lower fee, making it my preferred ETF for broad exposure to a wide variety of Canadian dividend paying stocks.

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