10 Best Dividend ETF in Canada 2023

In this post, we will be reviewing the 10 best dividend ETF in Canada. We included in our list all ETFs whether they invest in Canadian, American or Global markets. We compared these ETFs based on the dividend yield, performance over a 5 years period and volatility. For each ETF, we provide the funds’ objective and holdings. Finally, we will also discuss tax implications for holding Canadian ETFs that invest globally.

Review of VDY – Vanguard FTSE Canadian High Dividend Yield Index

Table 1: Best Dividend ETFs (Asset under management, MER and volatility

– XDV Ishares Canadian Select Dividend Index is the most popular dividend ETF in Canada with over 1.7 B in assets. While, XEI Ishares S&P TSX Comp High Div Index and VDY Vanguard FTSE CDN High Dividend Yld Index stand out with their low MER.

– Most of the popular dividend ETFs in Canada are invested in Canadian companies. In fact, Canadian dividend ETFs are great but they tend to be over exposed to the Energy and Financial sector due to the nature of the Canadian economy. Please review below the sector allocation for each ETF to get a better picture.

Table 2:  Best Dividend ETFs: Performance comparison

Top 10 Best Growth ETF in Canada!

Comments and analysis

– ZWP BMO Europe High Dividend Covered Call ETF and ZWC BMO CDN High Dividend Covered Call ETF both use covered calls strategy. They both pay a little bit over 6% in dividend which is great. But, investors should know that a portion of these payouts are dividends, the other portion are options’ premiums. In fact, because both of these ETFs write covered calls dynamically, they generate additional income through option premiums in certain conditions.

This strategy overall has a negative impact on the performance of these ETFs. When you are writing covered calls, you are in essence giving up on the upside potential of the stocks you own with the purpose of preserving capital. ZWC had a better performance than ZWP.

– FIE is an excellent choice in terms of dividend yield (close to 6%). Also, it has a great performance. The only drawbacks are its allocation (100% in the Canadian financial sector) and its relatively high MER.

– VDY Vanguard FTSE CDN High Dividend Yield Index has overall the best characteristics for a dividend ETF (yield around 4%, great performance, Beta lower than 1 and low MER especially VDY) . VDY is over exposed to the Canadian Financial and Energy sector. XEI from iShares is also another great option.

– VGG Vanguard US Dividend Appreciation is a great option if you are to looking for dividend from US based companies. This an ideal investment in a registered account to avoid the 15% withholding tax.

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Tableau 3: Monringstar rating, Dividend frequency and Beta

Full list of ‘Dividend Kings’ stocks by sector – 2023

My favorites best dividend ETF in Canada

Considering volatility, performance and MER, my number one choice for a the best canadian dividend ETF would VDY from Vanguard. It has a low MER and a lower volatility than the market. It offers an interesting yield and a great performance for its category. My second choice would be XEI from iShares.

FIE Ishares CDN Financial Monthly Income is a excellent choice if you are bullish on the financial sector and don’t mind higher volatility than average.

ZWP BMO Europe High Dividend Covered Call ETF and ZWC BMO CDN High Dividend Covered Call ETF offer high dividend yield. On the other hand long term performance is not there. The covered call strategy seem to impact negatively long term performance. As I mentioned above, Performance should be the first criteria when selecting a dividend ETF.

How to choose the best dividend ETF

• Performance and sector allocation

It’s a no brainer. Performance matters when selecting the best dividend ETF. A steady performance indicate the portfolio includes quality stocks such as Bluechips. But, one need to keep an eye on volatility and sector weighting. Regarding volatility, you want an interesting performance with the lowest possible volatility. This insures you are maximizing your returns for the risk you are taking.

Sector weighting is as important too. You need to understand where your money is invested and your portfolio’s overall exposure. Having a balanced portfolio across various industries is critical to reduce risk.

• Yield

I can’t stress enough. Total return is more important than dividend yield. This is true for stocks and ETFs. A dividend yield is an annual percentage calculating the amount received by the investor for a year. It does not take in consideration capital loss or appreciation. So, you could own an investment that has a positive dividend yield and a negative total return.

If income generation is paramount to you. You need to select first ETFs that have high total returns. Then within these ETFs identify the ones that pay a steady and decent dividend overtime.  

• Volatility

We use the 5 years Beta as a measure of volatility. A beta of 1 mean your investment is as risky as the overall market. When selecting an investment, the desired Beta is the lowest possible.

Tax implications for Global ETFs

There are so many possible structures for an ETF. Below, we will discuss mainly three common structures:

• Type 1: Canadian ETFs that invest in US or international stocks directly. There is 15% withholding tax that will impact the fund’s return;
• Type 2: Canadian ETFs that invest in US ETFs which invests in US stocks. There is 15% withholding tax that will impact the fund’s return;
• Type 3: Canadian ETFs that invest in US listed ETFs which invest in international stock. This is the structure that’s the least interesting for investors from a taxation perspective. 2 Taxes will be applied by the foreign country first and then the US.

TFSA, RESP, RRSP

Similar posts

• Best High-Interest Savings Account ETFs In Canada (2024)
• Review of XEI – Ishares S&P TSX Comp High Div Index ETF
• Review of VDY – Vanguard FTSE Canadian High Dividend Yield Index
• JEPI vs JEPQ: Which ETF is the Best Investment for You?
• Comparing VDY vs XEI: Unraveling the Superior High Dividend ETF for Canadian Investors

XDV – iShares Canadian Select Dividend Index ETF

XDV is the first in our list of Best dividend ETFs in Canada. The iShares Canadian Select Dividend Index ETF provides long-term capital growth by investing in 30 high yielding Canadian companies in the Dow Jones Canada Total Market Index.

XDV dividend ETF Holdings and sector allocation

DXG – Dyn Ishares Active Global Dividend ETF

The second ETF in our list of best dividend ETF in Canada is a global ETF. DXG is an actively managed fund. The fund invests primarily in a diversified portfolio of equity securities of businesses located around the world that pay or are expected to pay a dividend or distribution. These securities are selected actively based on size, profitability and liquidity. 56% of the funds holdings are invested in US companies, this is why it’s part of our list of the best US Dividend ETFs in Canada.

This ETF is ideal for investors seeking a dividend income from an international basket of large caps. The fund is well diversified across a variety of sectors mainly Technology, Industrials, Consumer discretionary and Health care.

DXG Dividend ETF Holdings

Sector breakdown

Sector breakdown

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

This ETF objective is to replicate the performance of the S&P/TSX Composite High Dividend Index ETF. The fund’s objective is long term capital growth by investing in Canadian companies operating across diversified sectors. XEI pays a monthly dividend income which can be appealing for investor who are looking for a frequent payout.

XEI Dividend ETF holdings

Sector allocation

VDY – Vanguard FTSE Canadian High Dividend Yield Index ETF

FTSE Canadian High Dividend Yield Index ETF tracks the performance of the FTSE Canada High Dividend Yield Index, which consists of Canadian stocks having a high dividend yield. Due to the nature of the Canadian market, this fund has large portion of its investment portfolio in Energy and Financials.

VDY Dividend ETF holdings

Sector allocation

ZWP – BMO Europe High Dividend Covered Call ETF

The BMO Europe High Dividend Covered Call ETF (ZWP) has been designed to provide exposure to a dividend focused portfolio. These dividend paying companies are selected based on:

• dividend growth rate,
• yield,
• payout ratio and liquidity.

What’s unique about this ETF is that it uses covered calls to protect against downside risk. This being said, the covered call strategy provides limited downside protection. Also, when you write a covered call, you give up some of the stock’s potential gains. These ETFs will tend to have a higher yield and a lower performance.

ZWP Dividend ETF Holdings

Geographic allocation

Sector allocation

CDZ – S&P/TSX Canadian Dividend Aristocrats Index Fund

The S&P/TSX Canadian Dividend Aristocrats includes only large companies that are part of the TSX and who have increased their dividend consistently for at least 5 years period. This fund has been around for a while now.

CDZ Dividend ETF holdings

Sector allocation

FIE – Ishares CDN Fin Monthly Income

Ishares CDN Fin Monthly Income seeks to maximize total return and to provide a stable stream of monthly cash distributions. FIE has a high exposure to the financial sector.

FIE Dividend ETF holdings

Sector allocation

VGG – Vanguard US Div Appr and VGH – U.S. Dividend Appreciation Index ETF (CAD-hedged)

VGG is index fund (passively managed). The fund currently seeks to track the performance of the NASDAQ US Dividend Achievers Select Index. The latter is comprised of a select group of securities with at least ten consecutive years of increasing annual regular dividend payments.

Index funds can be great especially from an MER perspective. VGG offers an exposure to large number of established US corporations, mostly Bluechips such as Microsoft, Walmart…etc.

VGG Dividend ETF Holdings

Geographic allocation

Sector allocation

ZWH – BMO US High Dividend Covered Call ETF

ZWH has been designed to provide exposure to a dividend focused portfolio, while earning call option premiums. The underlying portfolio is yield-weighted and broadly diversified across sectors. The Fund utilizes a rules-based methodology that considers the following criteria:

dividend growth rate,

yield,

payout ratio,

liquidity.

What’s unique about this ETF is that it uses covered calls to protect against downside risk. This being said, the covered call strategy provides limited downside protection. Also, when you write a covered call, you give up some of the stock’s potential gains. These ETFs will tend to have a higher yield and a lower performance.

ZWH Dividend ETF Holding

Geographic allocation

Sector allocation

Disclaimer

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