Best dividend etf canada

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

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

ETFAUM*MER*
%
XDV – Ishares Canadian
Select Div Index
           1,8000.55
DXG – Dyn Ishares Active
Global Div
            1,2000.81
XEI – Ishares S&P TSX
Comp High Div Idx
           1,1000.22
ZWC – BMO CDN High
Div Covered Call
            1,1000.72
VDY – Vanguard FTSE
CDN High Div Yld Idx
       1,1000.21
ZWP – BMO Europe
High Div Cov Call
            9380.71
CDZ – Ishares S&P
TSX CDN Div
               9520.66
FIE – Ishares CDN Fin
Mthly Income
           9030.89
VGG – Vanguard US
Div Appr
            8450.30
ZWH – BMO US High
Dividend Covered Call
              8540.71
Source: TD Market research, AUM Asset under management, MER Management expense ratio

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

ETFDiv
Yld %
YTD3yrs
%
5yrs
%
XDV4.42-9.047.207.58
DXG0.03-18.518.42na
XEI4.120.569.998.34
ZWC6.80-3.085.13na
VDY3.99-0.0611.749.83
ZWP7.79-13.500.23na
CDZ3.56-5.536.597.04
FIE7.00-13.665.837.33
VGG1.38-10.588.2611.37
ZWH6.35-8.066.207.20
Dividend yield as of October 12th 2022 (source Barchart), Monthly total returns, source: Yahoo finance

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Tableau 3: Monringstar rating, Dividend frequency and Beta

ETFMorningstar
Rating
MonthlyBeta
3 yrs
XDV4 starsYes0.9
DXG5 starsNo0.8
XEI2 starsYes1.1
ZWC2 starsYes0.9
VDY5 starsYes0.9
ZWP2 starsYes0.9
CDZ3 starsYes1.1
FIE4 starsYes1.3
VGG3 starsNo0.8
ZWH2 starsYes1.0
Source: TD Market research, Beta is a measure of risk, the higher the Beta the higher is the risk

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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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

Canadian ETF: 1$ dividend scenarioTaxesDividend received
1- Holding US or International stocks directly-0.15$ (withholding tax from US or foreign jurisdiction) Creditable0.85$
2- Holding US listed ETFs that invest in US stocks-0.15$ (withholding tax from US or foreign jurisdiction) Creditable0.85$
3- Holding US listed ETFs that invest in International stocks-0.15$ (withholding tax from foreign jurisdiction) Non creditable -0.13 (withholding tax from US) Creditable0.72$
The chart is designed for illustrative purposes only and is subject to change. Please consult a tax specialist for more information.

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

Company NameAllocation
Canadian Imperial Bank of Commerce8.7%
Bank of Montreal6.4%
Canadian Tire Corp Ltd Class A6.3%
Royal Bank of Canada6.2%
BCE Inc5.0%
TC Energy Corp4.8%
Labrador Iron Ore Royalty Corp4.7%
Bank of Nova Scotia4.6%
The Toronto-Dominion Bank4.3%
National Bank of Canada4.2%
Please consult issuers’ website for up to date data

Sector Classs% Allocation
Financial Services55.5%
Comm. Services11.7%
Utilities11.5%
Please consult issuers’ website for up to date data

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

Company NameAllocation
Ashtead Group PLC6.2%
Hoya Corp5.8%
LVMH Moet Hennessy
Louis Vuitton SE
5.7%
Facebook Inc Class A5.4%
Capital One Financial Corp5.2%
Alphabet Inc Class A5.2%
Salesforce.com Inc4.9%
NVIDIA Corp4.8%
Edwards Lifesciences Corp4.7%
CanadaBNP Paribas Act. Cat.A4.3%
Please consult issuers’ website for up to date data

Sector breakdown

TypeFund
United States62.3
International35.8
Please consult issuers’ website for up-to-date figures

Sector breakdown

Sector % Allocation
Financial Services21.7%
Technology17.8%
Consumer Cyclical15.0%
Comm. Services10.5%
Please consult issuers’ website for up-to-date figures

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

Company NameAllocation
Canadian Natural Resources Ltd5.4%
Nutrien Ltd5.2%
The Toronto-Dominion Bank5.1%
TC Energy Corp5.0%
Enbridge Inc5.0%
Royal Bank of Canada4.9%
BCE Inc4.8%
Bank of Nova Scotia4.5%
Suncor Energy Inc4.5%
Please consult issuers’ website for up to date data

Sector allocation

Sector% Allocation
Financial Services29.7%
Energy26.6%
Comm. Services14.1%
Utilities12.4%
Please consult issuers’ website for up to date data

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

Company NameAllocation
Royal Bank of Canada14.2%
The Toronto-Dominion Bank12.0%
Enbridge Inc8.1%
Bank of Nova Scotia7.5%
Bank of Montreal6.5%
Canadian Imperial Bank of Commerce4.9%
TC Energy Corp4.7%
BCE Inc4.5%
Canadian Natural Resources Ltd4.2%
Please consult issuers’ website for up to date data

Sector allocation

SectorFund
Financials59.3%
Energy22.6%
Telecommunications7.9%
Utilities6.2%
Basic Materials3.4%
Real Estate0.2%
Industrials0.2%
Consumer Discretionary0.2%
Other0.0%
Total100.0%
Please consult issuers’ website for up to date data

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

Company NameAllocation
Roche Holding AG4.0%
Nestle SA4.0%
Novartis AG4.0%
GlaxoSmithKline PLC4.0%
Sanofi SA3.8%
TotalEnergies SE3.7%
Unilever PLC3.7%
Enel SpA3.7%
Please consult issuers’ website for up to date data

Geographic allocation

CountriesWeight
Switzerland23.66%
Germany24.24%
United Kingdom18.76%
France16.72%
Other (multiple countries)16.62%
Please consult issuers’ website for up-to-date figures

Sector allocation

TypeFund
Information Technology6.22
Industrials12.18
Consumer Discretionary11.56
Consumer Staples11.78
Health Care16.56
Financials14.79
Materials9.48
Communication8.10
Energy3.89
Utilities3.66
Please consult issuers’ website for up-to-date figures

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

Company NameAllocation
Keyera Corp3.2%
SmartCentres3.0%
Pembina Pipeline Corp2.9%
Enbridge Inc2.9%
Canadian Natural
Resources Ltd
2.5%
Power Corporation
of Canada
2.5%
Fiera Capital Corp2.2%
Exchange Income Corp2.2%
Great-West Lifeco Inc2.2%
Please consult issuers’ website for up to date data

Sector allocation

TypeFund
Financials28.33
Energy14.88
Industrials11.80
Real Estate10.93
Utilities10.77
Consumer Staples7.03
Communication6.47
Materials3.51
Consumer Discretionary3.25
Health Care1.92
Please consult issuers’ website for up-to-date figures

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

Company Name
Allocation
iShares S&P/TSX Cdn
Prefr Shr ETF Comm
21.1%
iShares Core Canadian
Corporate Bd ETF
10.3%
Canadian Imperial
Bank of Commerce
8.5%
Royal Bank of Canada8.2%
The Toronto-Dominion Bank6.7%
National Bank of Canada6.5%
Manulife Financial Corp6.4%
Power Corporation of Canada6.0%
Please consult issuers’ website for up to date data

Sector allocation

TypeFund
Banks44.96
Insurance30.24
Diversified Financials8.48
Energy5.01
Utilities4.50
Real Estate2.81
Telecommunications1.12
Transportation0.73
Food & Staples Retailing0.57
Cash and/or Derivatives0.41
Please consult issuers’ website for up-to-date figures

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

Company NameAllocation
Microsoft Corp4.5%
JPMorgan Chase & Co3.9%
Johnson & Johnson3.8%
UnitedHealth Group Inc3.3%
Visa Inc Class A3.2%
The Home Depot Inc3.1%
Procter & Gamble Co3.0%
Comcast Corp Class A2.3%
Please consult issuers’ website for up-to-date figures

Geographic allocation

CountryFund
USA100.0%

Sector allocation

SectorFund
Industrials21.8%
Consumer Discretionary16.6%
Health Care15.4%
Financials13.9%
Technology13.0%
Consumer Staples10.3%
Utilities3.8%
Basic Materials3.0%
Telecommunications2.2%
Other0.0%
Real Estate0.0%
Energy0.0%
Total100.0%
Please consult issuers’ website for up-to-date figures

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

Company NameAllocation
Apple Inc4.2%
Microsoft Corp4.2%
Coca-Cola Co4.1%
AbbVie Inc4.1%
The Home Depot Inc4.1%
Procter & Gamble Co4.1%
Pfizer Inc4.0%
Please consult issuers’ website for up to date data

Geographic allocation

CountryFund
USA100.0%
Please consult issuers’ website for up-to-date figures

Sector allocation

SectorFund
Information Technology22.61%
Industrials8.39%
Consumer Discretionary10.06%
Health Care12.40%
Financials15.50%
Materials4.36%
Communication9.58%
Consumer Staples7.35%
Energy3.86%
Utilities3.84%
Real estate2.05%
Please consult issuers’ website for up-to-date figures

Disclaimer

The data on this website is for your information only. It does not constitute investment advice, or advice on tax or legal matters. Any information provided on this website does not constitute investment advice or investment recommendation nor does it constitute an offer to buy or sell or a solicitation of an offer to buy or sell shares or units in any of the investment funds or other financial instruments described on this website. Should you have any doubts about the meaning of the information provided herein, please contact your financial advisor or any other independent professional advisor.

2 thoughts on “10 Best Dividend ETF in Canada 2023”

  1. I think that HCAL is a very good option for dividend incomes and exposure to the best Canadians banks.

    1. If you are bullish on Canadian banks! The 25% additional leverage increases volatility but also yield.

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