5 Best Dividend ETFs in Canada (2024)

Guy researching Dividend ETFs on laptop
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Dividend ETFs are some of the best investments for those seeking passive income.

Here are 5 of the best dividend ETFs Canadians should consider:

1. iShares S&P/TSX Composite High Dividend Index ETF (XEI)
2. iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (CDZ)
3. Horizons Active Canadian Dividend ETF (HAL)
4. Vanguard Dividend Appreciation ETF (VIG)
5. Vanguard High Dividend ETF (VYM)

 

Ticker Company Dividend Yield Investment Strategy Fees (MER)
XEI Blackrock 5.23% Invests in low-risk, high-yield, blue chip dividend companies.  0.22%
CDZ Blackrock 3.93% Invests in companies that have raised dividends every year for at least five consecutive years. 0.66%
HAL Horizons 3.5% Invests in high-yield dividend companies across North America. 0.68%
VIG Vanguard 1.8% Invests in US companies that consistently grow dividends. 0.06%
VYM Vanguard 3.01% Invests in US high-yield dividend companies. 0.06%

Dividend Yield as of 2024-03-01 10:15:02 remaining data above and below as of October 2023

What is a Dividend ETF?

A dividend ETF is a fund that invests in dividend-paying stocks.

Usually, these funds are designed to offer steady recurring income from a broad portfolio of blue-chip assets.

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

Since its inception, the ETF has delivered a compounded annual growth rate (CAGR) of 5.88%.

The fund has lost 4.1% in total return over the past twelve months as of October 31, 2023.

That’s because the fund is heavily weighted towards Canadian oil and gas companies with over 30% of the fund invested in the energy sector, while banks and financial companies make up another 30%.

It’s a well diversified portfolio that’s focused on blue chip dividend companies.

That’s why this ETF deserves a spot on your list.

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

Banks and energy companies have surged ahead in dividend yields over the past two years.

However, other sectors of the economy have delivered more steady dividend growth over longer time horizons.

That’s the strategy adopted by the iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (TSX:CDZ).

CDZ focuses on companies that have expanded their dividend payout every year for at least five consecutive years.

That means the portfolio is focused on companies that can deliver shareholder rewards during market distress and changes in the economic cycle. 

So-called dividend aristocrats have a demonstrable track record of rewarding patient shareholders.

The ability to boost dividends every year signifies a healthy business model, inflation-resistance, pricing power and a shareholder-friendly corporate culture.

Dividend growth is also a driving factor behind long-term stock market performance. 

CDZ’s top three holdings are companies like Aecon Group, Chartwell Retirement Reisdences and Great West Lifeco.

However, niche dividend stocks are also amongst holdings.

Overall, CDZ’s portfolio is better diversified, with financial companies contributing 30.21% of assets and energy only 10.76%.

The fund has delivered a CAGR of 5.94% since inception.

This return could be more stable than the high-yield fund mentioned above.

3. Horizons Active Canadian Dividend ETF (HAL)

Two things set the HAL fund apart from others.

The portfolio is spread across North America and it’s rebalanced frequently.

In other words, the fund’s managers seek to find the best dividend stocks across the continent and shift the portfolio in-line with the market cycle.

This active approach should, in theory, lead to better performance. 

HAL has delivered a CAGR of 7.60% since inception in 2010, which is better than most other dividend ETFs on this list. 

As of October 31, 2023, HAL’s portfolio was dominated by Canadian energy and banks.

28.79% of the portfolio was in oil and gas, while 97.59% was based in Canada.

The rest was spread across the United States and invested in diverse sectors such as finance and real estate. 

Investors can expect this portfolio to change over time as the fund management team is proactive in seeking out the best dividend stocks.

This strategy is more intensive but can help elevate the ETF’s overall yield and performance. 

However, this actively-managed fund isn’t necessarily expensive.

The management expense ratio is 0.68%.

That makes HAL a perfect fit for investors trying to maximize performance and dividends over time. 

4. Vanguard Dividend Appreciation ETF (VIG)

Canadian investors may be over-exposed to the domestic stock market.

This home bias has crowded portfolios with energy and banking stocks.

One way to diversify is to invest in dividend stocks across the border.

Vanguard’s Dividend Appreciation fund focuses on large-cap American companies with steadily growing dividends.

The fund’s largest holdings are tech and pharma giants like Microsoft Corp. and United Health Group.

$10,000 invested in this fund ten years ago would be worth over $25,000 today based on their 10 year CAGR of 9.94%.

That’s far better than most Canadian dividend stocks.

Because the portfolio is heavily tilted to tech and consumer companies, it experiences a better growth rate.

The average earnings growth of the VIG portfolio is 16.4%. 

VIG is an excellent instrument to add US exposure to your portfolio. 

5. Vanguard High Dividend ETF (VYM)

The Vanguard High Dividend ETF (VYM) focuses on American stocks with the highest yield and the best quality.

The portfolio is a good mix of energy, industrials, healthcare and consumer staples.

It includes household names like Procter & Gamble, Home Depot and Walmart.

$10,000 invested in this fund ten years ago would be worth over $22,000 today based on their 10 year CAGR of 8.61%.

The fund’s top holding is Exxon Mobil, which has been one of the best-performing energy stocks recently.

The fund’s third largest holding is healthcare giant Johnson & Johnson.

Despite the fund’s name, Vanguard High Dividend’s 3.01%v yield is not as high as its Canadian counterparts as the underlying companies are more defensive and less cyclical.

However, that makes the passive income from this fund relatively more reliable.

Key Considerations When Investing in Dividend ETFs in Canada

Investors must consider all aspects of a specific dividend ETF before investing.

Perhaps the most important element of such funds is the yield.

Usually, a high yield signals robust profit margins and good pricing power for the underlying companies.

However, a high yield could also be deceptive if the industry or underlying companies are in decline.

This is why investors must also consider the fund’s strategy and portfolio mix.

Any fund that is overexposed to a certain sector (such as energy) could be more cyclical and risky if the economic trend shifts. 

Another factor to consider is the expense ratio.

If the ratio is too high, it undermines the dividend yield and long-term total return of the fund.

Frequently Asked Questions

  • Are dividend ETFs worth investing in?
  • Which ETFs pay the highest dividends?
Vishesh Raisinghani

Vishesh Raisinghani is the founder of Sharpe Ascension - a financial content marketing agency based in Toronto. Born in Mumbai, India and graduated from the Manchester Metropolitan University, he has been investing in and writing about stocks since 2011.

His investments and research are focused on tech stocks, growth opportunities, cryptocurrencies, emerging markets, and real estate. His clients include hedge funds, family offices, publicly-traded companies and tech startups trying to reach their investors through online communications.

When he's not writing, he's usually cycling around Toronto, paddleboarding on Lake Ontario, reading a book on the beach, slurping beer on a patio or relentlessly tweeting random thoughts. Website | Follow Vishesh on Twitter.

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