Best dividend etf canada

Best Dividend ETFs in Canada 2021 (Top 10 Comparison and analysis)

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.

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. 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. 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.

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Table 2:  Best Dividend ETFs: Performance comparison

ETFDiv
yld %
6 M3 yrs
%
5 yrs
%
XDV3.5620.9011.7010.19
DXG06.9520.30n-a
XEI3.9416.659.288.14
ZWC6.6015.556.07n-a
VDY3.8616.5610.4310.16
ZWP6.1412.734.51n-a
CDZ3.0617.7610.729.24
FIE6.1015.859.9711.05
VGG1.4016.2914.3314.50
ZWH5.9815.589.029.10
Source: TD Market research as of August 31st

Tableau 3: Monringstar rating, Dividend frequency and Beta

ETFMorningstar
Rating
MonthlyBeta
3 yrs
XDV4 starsYes0.9
DXG5 starsNo0.8
XEI3 starsYes1.1
ZWC2 starsYes0.9
VDY5 starsYes0.9
ZWP2 starsYes0.9
CDZ3 starsYes1.1
FIE4 starsYes1.3
VGG3 starsNo0.8
ZWH1 starYes1.0
Source: TD Market research as of June 30th 2021, Beta is a measure of risk, the higher the Beta the higher is the risk

Comments and analysis

DXG Dyn Ishares Active Global Dividend had the best overall performance (3 years span). In addition, it had the lowest volatility at 0.8. However, the fund’s performance since the start of the year is really low. And, it seems the focus of this ETF is more capital growth rather than income distribution. So, it’s not ideal for someone looking for a steady dividend income.

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 at 6.10%. 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 and XDV Ishares Canadian Select Dividend Index have overall the best characteristics for a dividend ETF (yield around 4%, great performance, Beta lower than 1 and low MER especially VDY) . They are both over exposed to the Canadian Financial and Energy sector.

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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 XDV 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

NameWeight (%)
CANADIAN IMPERIAL BANK OF COMMERCE7.93
CANADIAN TIRE LTD CLASS A7.35
ROYAL BANK OF CANADA5.94
BANK OF MONTREAL5.93
LABRADOR IRON ORE ROYALTY CORP5.46
TC ENERGY CORP4.89
BCE INC4.81
BANK OF NOVA SCOTIA4.78
TORONTO DOMINION4.36
NATIONAL BANK OF CANADA3.95
Issuers’ website as of April 20th

TypeFund
Financials53.21
Utilities12.14
Communication11.71
Consumer Discretionary7.35
Energy6.07
Materials5.46
Industrials3.43
Cash and/or Derivatives0.64
Issuers’ website as of April 20th

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

NameSectorWeight (%)
HOYA CORPHealth Care5.44
ASHTEAD GROUP PLCIndustrials5.33
CHUBB LTDFinancials5.18
PARKER-HANNIFIN CORPIndustrials5.14
LVMHConsumer Discretionary5.13
SNAP ON INCIndustrials5.09
MASTERCARD INC CLASS AInformation Technology4.71
TE CONNECTIVITY LTDInformation Technology4.69
ALPHABET INC CLASS ACommunication4.63
CAPITAL ONE FINANCIAL CORPFinancials4.56
Issuers’ website as of March 31st

Sector breakdown

TypeFund
United States66.57
United Kingdom12.07
Japan8.69
France7.78
Switzerland3.29
Cash and/or Derivatives1.61
Issuers’ website as of March 31st

Sector breakdown

TypeFund
Industrials23.43
Consumer Discretionary20.95
Financials15.97
Information Technology15.96
Materials9.61
Communication8.45
Health Care5.43
Cash0.20
Issuers’ website as of March 31st

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

NameWeight (%)
TC ENERGY CORP5.05
ENBRIDGE INC5.04
BCE INC5.03
TORONTO DOMINION4.99
ROYAL BANK OF CANADA4.96
BANK OF NOVA SCOTIA4.72
PEMBINA PIPELINE CORP4.65
CANADIAN NATURAL RESOURCES LTD4.56
SUNCOR ENERGY INC4.33
NUTRIEN LTD4.21
Issuers’ website as of April 20th

Sector allocation

TypeFund
Financials29.65
Energy28.91
Communication13.18
Utilities11.61
Materials5.98
Real Estate5.83
Consumer Discretionary2.83
Industrials1.07
Health Care0.40
Cash and/or Derivatives0.35
Issuers’ website as of April 20th

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

Holding name% of market value
Royal Bank of Canada(RY)14.08%
Toronto-Dominion Bank(TD)12.65%
Bank of Nova Scotia(BNS)8.11%
Enbridge Inc.(ENB)7.90%
Bank of Montreal(BMO)6.11%
TC Energy Corp.(TRP)4.80%
Canadian Imperial Bank of Commerce(CM)4.67%
Manulife Financial Corp.(MFC)4.46%
BCE Inc.(BCE)3.86%
Canadian Natural Resources Ltd.(CNQ)3.83%
Issuers’ website as of March 31st  

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%

Issuers’ website as of March 31st  

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

Weight (%)Name
4.69%VOLKSWAGEN AG PFD
3.93%UNILEVER PLC
3.92%ALLIANZ SE
3.90%NESTLE SA
3.89%SIEMENS AG
3.82%BASF SE
3.62%ENEL SPA
3.60%TOTAL SE
3.58%NOVO NORDISK A/S
3.54%RIO TINTO PLC
Issuers’ website as of April 20th

Geographic allocation

CountriesWeight
Switzerland23.66%
Germany24.24%
United Kingdom18.76%
France16.72%
Other (multiple countries)16.62%
Issuers’ website as of April 20th

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
Issuers’ website as of April 20th

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

SymboleNom
SRU.UNSMARTCENTRES RL ESTATE INVESTMENT
PPLPEMBINA PIPELINE CORP
ENBENBRIDGE INC
KEYKEYERA CORP
FSZFIERA CAPITAL CORP CLASS A
POWPOWER CORPORATION OF CANADA
CNQCANADIAN NATURAL RESOURCES LTD
GWOGREAT WEST LIFECO INC
TRPTC ENERGY CORP
BCEBCE INC
Issuers’ website as of April 20th

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
Issuers’ website as of April 20th

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

NomWeight (%)
ISHARES S&P/TSX CANADIAN PREFFERED21,09
iShs Canadian Corp Bnd Idx ETF10,49
CANADIAN IMPERIAL BANK OF COMMERCE8,40
ROYAL BANK OF CANADA8,32
MANULIFE FINANCIAL CORP7,45
SUN LIFE FINANCIAL INC7,06
TORONTO DOMINION6,95
NATIONAL BANK OF CANADA6,49
POWER CORPORATION OF CANADA5,54
IA FINANCIAL INC3,62
Issuers’ website As of April 20th

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
Issuers’ website As of April 20th

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

Holding name% of market value
JPMorgan Chase & Co.(JPM)3.94%
Johnson & Johnson(JNJ)3.88%
Microsoft Corp.(MSFT)3.86%
Walmart Inc.(WMT)3.45%
UnitedHealth Group Inc.(UNH)3.17%
Visa Inc. Class A(V)3.08%
Procter & Gamble Co.(PG)2.99%
Home Depot Inc.(HD)2.95%
Comcast Corp. Class A(CMCSA)2.22%
Coca-Cola Co.(KO)2.04%

Issuers’ website as of March 31st

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%
Issuers’ website as of March 31st

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

Weight (%)Name
4.31%MICROSOFT CORP
4.28%HOME DEPOT INC/THE
4.23%CISCO SYSTEMS INC/DELAWARE
4.14%BANK OF AMERICA CORP
4.02%INTERNATIONAL BUSINESS MACHINES CORP
3.96%JPMORGAN CHASE & CO
3.81%ABBVIE INC
3.81%APPLE INC
3.77%PFIZER INC
3.73%COCA-COLA CO/THE
As per issuers’ website as of April 20th

Geographic allocation

CountryFund
USA100.0%
As per issuers’ website as of April 20th

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%
As per issuers’ website as of April 20th

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 “Best Dividend ETFs in Canada 2021 (Top 10 Comparison and analysis)”

  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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