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The Best Canadian Dividend ETFs 2017

This post was originally written in 2015 but I have updated it due to recent questions about the top Canadian dividend ETFs available.  Check out the new entrants below.

Dividend investing has been a part of my portfolio strategy since I started MDJ but with a bit more focus on building that portion of the portfolio in recent years.

To rewind a little, I keep my Canadian dividend stocks in a leveraged non-registered account where I use my HELOC for capital and claim the interest as a tax deduction.  I own individual stocks, rather than Canadian dividend ETFs for various reasons (find out why), but there are a number of circumstances where ETFs would work better.

ETFs are easier to manage, and they follow a particular index which helps reduce the risk of owning individual stocks.  There are also downsides, particularly the annual management expense ratio (MER) and the lack of control in which positions that the ETF owns.

The selection of Canadian Dividend ETFs have grown over the years and the list has only gotten better with Blackrock iShare’s newest edition.  Note that the list below does not include Canadian real estate investment trusts (REITS). If you’re interested in more global diversification, check out my article on international dividend ETFs.

Canadian Dividend ETFs

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

Investment Style: This ETF follows the dividend achievers index which holds dividend stocks that have a history of increasing their dividend (at least 5 consecutive years).  I use this strategy for my leveraged dividend portfolio but with a very different selection of stocks.  The downside of this ETF is that it is expensive with MER of 0.66%, and some questionable stock picks in my opinion (65 positions in total).  The bright side of this fund is that it’s not dominated by financials like the other ETFs listed below (as of the date of this post).

Top 10 Holdings:

  1. Northview Apartment Real Estate Trust (NVU.UN)
  2. Corus Entertainment (CJR.B)
  3. Genworth MI Canada (MIC)
  4. IGM Financial (IGM)
  5. Granite Real Estate Investment Trust (GRT.UN)
  6. Russel Metals (RUS)
  7. Algonquin Power Utilities (AQN)
  8. Gibson Energy (GEI)
  9. Altagas ltd (ALA)
  10. Alaris Royalty Corp (AD)

MER: 0.66%

iShares Canadian Select Dividend Index ETF (XDV)

Investment Style:  This ETF uses a methodology that combines dividend growth, yield, and average payout ratio, then chooses 30 positions with the highest yield.  Although cheaper than CDZ, the MER is still pretty high for an ETF at 0.55%.  This ETF has a large exposure to financials at almost 59%.

Top 10 Holdings:

  1. Agrium Inc (AGU)
  2. CIBC (CM)
  3. Royal Bank of Canada (RY)
  4. Bank of Montreal (BMO)
  5. Bank of Nova Scotia (BNS)
  6. BCE (BCE)
  7. TransCanada Corp (TRP)
  8. IGM Financial (IGM)
  9. Laurentian Bank of Canada (LB)
  10. National Bank (NA)

MER: 0.55%

FTSE Canadian High Dividend Yield Index ETF (VDY)

Investment Style:   Vanguard is relatively new to the Canadian ETF scene but they have a good selection with lower MERs which helps put pressure on the other providers.  This ETF follows the FTSE Canadian High Dividend Yield index (60 positions) but does not include much detail about their strategy except that they are a  market-weighted index that purchases common stocks with a history of above-average dividend yield.  As with any ETF that is market weighted in Canada, it’s heavy in financials with almost 65% weighting.

Top 10 Holdings:

  1. Royal Bank of Canada (RY)
  2. Toronto-Dominion Bank (TD)
  3. Bank of Nova Scotia (BNS)
  4. Enbridge Inc. (ENB)
  5. Bank of Montreal (BMO)
  6. TransCanada Corp. (TRP)
  7. Manulife Financial Corp. (MFC)
  8. Canadian Imperial Bank of Commerce/Canada (CM)
  9. Sun Life Financial Inc. (SLF)
  10. Rogers Communications (RCI.B)

MER: 0.22%

BMO Canadian Dividend ETF (ZDV)

Investment Style:  This ETF uses a methodology that looks for dividend growth, yield, and payout ratio.   With 52 positions it has a MER in the middle of the pack.  In terms of sector diversification, this ETF does a decent job with 37% financials exposure.

Top 10 Holdings:

  1. Genworth MI Canada (MIC)
  2. IGM Financial (IGM)
  3. Inter Pipeline (IPL)
  4. CI Financial Corp (CIX)
  5. Vermillion Energy (VET)
  6. Capital Power Corp (CPX)
  7. National Bank of Canada (NA)
  8. AltaGas Ltd (ALA)
  9. Gibson Energy (GEI)
  10. Bank of Nova Scotia (BNS)

MER: 0.39%

iShares Core MSCI Canadian Quality Dividend Index ETF (XDIV)

Investment Style:  This is a new addition to the list with an inception date of June 2017.  This ETF is a low-cost portfolio of Canadian stocks with above-average dividend yield and steady or increasing dividends and strong overall financials.  This ETF has a fairly concentrated portfolio with only 22 positions, but with an MER of ~0.12%, it is seriously cheap for a dividend ETF.  I thinking that this new iShares ETF will start cannibalizing XDV due to its lower cost and similar exposure.

Top 10 Holdings:

  1. Bank of Montreal (BMO)
  2. CIBC (CM)
  3. Royal Bank of Canada (RY)
  4. Bank of Nova Scotia (BNS)
  5. TransCanada Corp (TRP)
  6. Sun Life Financial (SLF)
  7. Rogers Communications (RCI.B)
  8. Pembina Pipeline (PPL)
  9. Fortis (FTS)
  10. Agrium Inc (AGU)

MER: ~0.12% (no MER listed on the website, but their management fee is 0.10%)

PowerShares Canadian Dividend Index ETF (PDC)

Investment Style:  This ETF mirrors the NASDAQ Select Canadian Dividend Index.  This ETF owns high-yielding Canadian stocks with a track record of growing dividends (43 positions).  While this ETF is not exactly cheap with a MER of 0.55%, it has a little less exposure to financials @ 30%.

Top 10 Holdings:

  1. CIBC (CM)
  2. TELUS (T)
  3. Power Financial Corp (PWF)
  4. BCE Inc (BCE)
  5. Pembina Pipeline (PPL)
  6. Power Corp of Canada (POW)
  7. IGM Financial (IGM)
  8. Brookfield Infrastructure Partners (BIP.UN)
  9. Shaw Communications (SJR.B)
  10. Emera (EMA)

MER: 0.55%

Final Thoughts

Out of the six Canadian dividend ETFs, there is no clear-cut “winner” as each has their good and bad attributes.  If you are dead set on a dividends only portfolio, then you will probably need to select a combination of two ETFs to get proper sector diversification.

I like the strategy that CDZ uses (focus on dividend growth), but their MER is high, and some of their positions are questionable.  For example, some of the holdings have not increased their dividend for 5 years in a row which goes against their core strategy.  As well, CDZ has very little financial sector coverage which can be a good or bad thing depending on your existing exposure to the sector.

XDV is a popular ETF,  but expensive with significant exposure to the financial sector.  With the new kid on the block XDIV out there (very similar exposure and positions), I imagine that there will be an outflow of assets from XDV to XDIV because of the lower MER (~0.12%)

Vanguards VDY is a reasonable deal with 0.22% MER, and has very similar holdings as XDV/XDIV.   However, VDY has 60 positions which provide a little more diversification over XDVs 30 positions and XDIVs 22 positions.  I like to consider the trio of VDY/XDV/XDIV as financial dividend ETFs as their financial weighting is 60%+.

ZDV has a reasonable MER, but with top holdings that appear to be very volatile with high payout ratios.  Personally, I’m not a fan of this ETF due to its holdings.

Finally, the other new entrant to this list is PowerShares PDC.  I personally like the holdings in this ETF, but not a fan of the fee (0.55%).  In terms of a combination of ETFs to get balanced exposure, I would probably use a combination of XDIV/PDC or VDY/PDC.

If you’re looking for distributions, there are other options as well such as REIT ETFs like iShares XRE, BMO ZRE or Vanguards VRE.  For the adventurous, there are also covered call ETFs available by BMO.

If you decide to invest in low-fee ETFs, make sure to consider the discount brokerages that allow commission-free ETF trading.

Photo Credit: My 9-year-old daughter.

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FT About the author: FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.

{ 25 comments… add one }
  • CiscoKid January 28, 2013, 10:31 am

    Is there something to VDY that I don’t see? This is supposed to be a dividend paying ETF, but from what I can see, its payout is ridiculously low… I see it’s gone us in value a good amount since inception, but that would be capital gains & not dividends… Is it expected to increase it’s payout significantly over time?

    CDZ also looks to have a payout of only a little over 3% annually, is that considered good in your books? because I don’t see that as very good

    I haven’t bought any dividend ETFs as of yet, but I’d like to for the stability, I have a good amount of BCE.TO & AGF-B.TO.

    A little off topic, but do any of you have any opinion on on AGF-B.TO? I’ve done well (bought at 9.30) But I question the stability of my investment, I don’t think such a high payout is sustainable, any thoughts?

    Thanks!

  • Al January 28, 2013, 10:31 am

    Canadian dividend ETFs are skewed towards energy and financial names and obviously selected because of dividends… what could possibly go wrong?

    An open question: i you constructed your own portfolio from individual stocks, would it look like the exampkes above?

  • On Demand January 28, 2013, 12:07 pm

    If you buy CDZ thru iTrade, no commission will be charged. Good for dollar cost averaging. So I own CDZ along with some solid dividend stocks like BCE, HSE, POW, etc.

  • FT FrugalTrader January 28, 2013, 12:55 pm

    @Al, my leveraged portfolio looks like a combination of VDY and CDZ. You can take a look at the individual picks here: https://www.milliondollarjourney.com/smith-manoeuvre-portfolio-august-2012.htm

    @CiscoKid, CDZ picks stocks with a history of growth, thus the lower yield. CDZ and VDY both have similar yields. Personally, I dont’ like buying div stocks just for the yield b/c a lot of times, the high yield means an unsustainable dividend. Once a dividend gets cut, look out below!

    @On Demand, good point, that will help reduce the overall MER.

  • Jane Savers @ The Money Puzzle January 29, 2013, 8:11 am

    Why don’t you hold some of your dividend paying stocks in your TFSA?
    Dividend income would not be taxable. I keep my measly holdings in there.

    Perhaps your holdings are too vast to fit in the confines of the TFSA but at least $5.500 every year could be sheltered.

    • Danny November 20, 2017, 11:42 am

      If your TFSA is maxed, you need to start considering asset location strategies to minimize the taxes paid. Dividend paying Canadian Stock is the most tax efficient holding for Canadians, so if you are in the position where you have to have some of your investments in non-reg accounts, you want their concentration to be on Cdn dividend payors, and use your registered accounts to hold less tax efficient investments.

    • Danny November 20, 2017, 11:42 am

      If your TFSA is maxed, you need to start considering asset location strategies to minimize the taxes paid. Dividend paying Canadian Stock is the most tax efficient holding for Canadians, so if you are in the position where you have to have some of your investments in non-reg accounts, you want their concentration to be on Cdn dividend payors, and use your registered accounts to hold less tax efficient investments.

  • mavener January 29, 2013, 5:25 pm

    Just a comment.

    Is it possible for you to input date stamps on your articles, I was reviewing a few of the your other topics, but got mixed up with some of them and the order I was reading them in as there are no date stamp, its hard to tell.

    Also, time stamps for people would be nice too!

  • Canadian Dividend Blogger January 30, 2013, 2:47 am

    I really dislike the holdings and weighting of CDZ. The “exception” clause really lowers the bar, allowing companies to still qualify if they miss up to two years out of the five. And by weighting according to yield, as you can see, questionable companies are rising to the top as investors flee for the mountains. The only reason it’s done well over the last three years has been the outperformance of the quality companies that compose a smaller percentage of the overall weight.

    The ETFs are a good place to look for companies to hold directly though, for those interested in direct ownership.

  • Bet Crooks January 31, 2013, 12:35 pm

    I like the idea of the ETFs until I see the stocks they pick. I’m sorry but I don’t trust Sun Life, for example. I think I’ll have to stick with individual stocks where if I screw up I know who to blame.

  • Jim Patterson February 1, 2013, 12:53 pm

    Wow. It’s great to get a tax deduction when you use your HELOC to invest, but you still have to pay the interest even when it’s effectively pre-tax. How can you make money on dividend stocks after doing that? My TD Bank line of credit (also secured) wants 4.75%; not much room for profit there, and I expect you’d lose money with any of the Dividend ETFs.

  • FT FrugalTrader February 1, 2013, 1:53 pm

    @Jim – For us, our HELOC is still at prime, so 3%, so after tax we are paying around 2%.

  • Value Indexer February 3, 2013, 4:20 pm

    Your approach sounds interesting. When you’re looking at buying more of a stock on your list, what do you use as the target yield before you buy?

  • Jagas February 4, 2013, 3:35 pm

    I spent a good part of the weekend constructing a small ETF based portfolio and after going back and forth on a number of Canadian Dividend ETFs for a portion of the portfolio I decided to split it down the middle between CDZ and ZDV. Had I read your post first I may have saved myself some time!

  • Trevor February 15, 2013, 3:55 pm

    I’m in a very low tax bracket right now (my wife is in a high one however) and our TFSA are maxed out.

    because I’m in a low tax bracket, I thought rather than putting money in her or my RRSP that I could invest it in a dividend fund and end up paying almost zero taxes on it.

    I live in BC and make <37K (student)

    If for example, I buy $10,000 of ZDV and it goes up by 5% (gain of $500) – how much would I have to give the government? Based on my low income and the generous tax credits it almost seems like investing in the an eligible dividend ETF would be similar to keeping money in a TFSA.

    From the table I have I have an 'eligible dividend tax rate' of -6.84%. I'm not really sure what that means.

    Thanks for the help.

  • John February 20, 2013, 5:05 am

    CDZ’s distributions have not increased over 6 years. They tend to fluctuate between 5 and 7 cents a unit. For a fund that selects dividend achievers–companies that consistently raise their dividends–this is not impressive. .

  • FrugalTrader July 18, 2014, 1:58 pm

    Another one to add to the list is iShare’s XEI which has a relatively high yield with lower MER (0.20%).

  • Ms99to1percent November 20, 2017, 9:31 am

    Thanks for keeping this list updated. We are currently not too focused on dividends, but we might be once we are 5 years or so away from FIRING.

  • Leo Ly @ isaved5K.com November 20, 2017, 9:58 am

    Depending on the size of your portfolio, if your portfolio is over $100K, you can select the ETF for that you like, take the top 30 positions and just buy the stocks yourself. Assuming the that you pay $10 per transaction, this costs you $300 initially and going forward if you are a buy and hold investor, you will most likely pay less than 0.1% in transaction cost and nothing in MER.

    Now you have your very own low cost ETF.

  • Ty November 20, 2017, 12:02 pm

    I agree with Frugal Trader. XEI has a higher distribution and caps each holding ~5% to limit exposure on single holdings. The top names are all the familiar suspects and the MER is much lower than some others at 0.20%.
    Disclosure: ~ I hold a large position in XEI in my taxable account.

    • Shel November 20, 2017, 12:55 pm

      +1 on XEI and my reasons for holding it are as Ty has mentioned. Also each sector is capped at 30% (particularly for the Cdn market, financials and energy) which I like as a constraint. Yield of ~4.5%

    • Bernie November 20, 2017, 1:35 pm

      The biggest drawback with XEI is with the irregularity of the dividends. There were three monthly dividend cuts in 2016. This could be a problem with income investors seeking a safe, reliable, increasing dividend stream.

      I don’t own an ETF but, from what I see, they have the best combination of growth, dividend growth, yield and diversity of the holdings.

      • Bernie November 20, 2017, 1:37 pm

        Correction: I don’t own an ETF but, from what I see, PDC has the best combination of growth, dividend growth, yield and diversity of the holdings.

  • GYM November 25, 2017, 3:09 pm

    Thanks for the updated list :) I have ZDV but a small position in it. I like that these dividend ETFs are pretty generous, considering ETFs don’t traditionally have much in the way of dividends.

  • Passivecanadianincome December 4, 2017, 11:21 pm

    Great list. Thanks for putting it together. Like you mentioned they are very finance energy heavy. Same as my portfolio but i will look for individual stocks in those etfs in other sectors.
    Cheers

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