best dividend etf 2021

Best Canadian dividend ETF 2021- Top 16

In this article, we’ll go over the best Canadian Dividend ETFs. To be clear, we are interested here in exchange-traded funds that invest exclusively in Canadian companies. From a tax standpoint, the ETFs are more beneficial since ETFs that invest in non-Canadian companies are subject to withholding tax on any distribution of dividends. We started by selecting the 16 most popular ETFs in this category. Next, we compared these ETFs based on several criteria (strategy, div yield, and MER). For each ETF, we also provide the objective and the holdings.

Strategies adopted by Canadian Dividend ETFs

Portfolio managers can adopt a variety of strategies to generate income. There are four trends on the market:

Diversified Dividend ETFs

These ETFs are the most common. They invest in the best Canadian companies in terms of dividend yield and growth potential. These funds invest your money in several sectors of the economy. However, due to the nature of the Canadian economy, it’s not surprising to see these funds dominated by the banking and energy sector.

Preferred shares ETFs

These ETFs invest in preferred shares issued by the most prominent Canadian companies. A preferred share is a hybrid product between common stock and a bond. It’s similar to a bond because the issuer agrees to pay an agreed-upon yield. However, preferred shareholders benefit very little from the appreciation in the market value of the issuing company. Generally speaking, preferred equity ETFs will have a high dividend yield but a meager growth potential.

Dividend ETFs using Call Options

These ETFs write call options on the securities held in their portfolio for two main objectives: 1- to protect themselves in the event of a significant drop in the value of the securities held and 2- to collect the premiums and thus enhance distributions. These funds are very popular in Canada despite the poor long-term performance they generate.

Bank ETFs

These ETFs invest in the largest Canadian banks. It’s both a sector play and a dividend income strategy.

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Comparison MER, Assets under management and volatility

NameAUM*MER*Beta*
ZWB – BMO Covered
Call Canadian Banks
2,2340.720.82
ZPR – BMO Laddered
Pref Share
2,1860.501.26
HPR – Horizons Active
Pref Share
1,7740.641.21
XDV – iShares Can
Select Dividend Indx
1,7600.550.97
CPD – Ishares S&P
TSX CDN Pref
1,4600.501
ZWC – BMO CDN High
Div Covered Call
1,1610.720.81
XEI – Ishares S&P TSX
Comp High Div Indx
1,0400.221.24
VDY – FTSE Canadian
High Div Yield Indx
1,1010.211.28
CDZ –iShares S&P/TSX
Can Div Aristo Indx
9750.660.89
FIE – Ishares CDN Fin
Mthly Income
9260.891.25
PDC – Invesco Can
Dividend Index
7760.560.86
ZDV – BMO
Canadian Div
7130.390.90
XDIV –iShares CoreMSCI
Can Quality Div Indx
4780.110.94
DGRC – CI Wisdomtree
CDN Qlty Div Gwth Idx
3770.240.93
RBNK – RBC CDN
Bank Yield Index
1710.321
RCD – RBC Quant CDN
Dividend Leaders
1110.420.96

Source Barchart, as of August 5th. AUM: total assets under management in millions. MER management expense ratio. Beta is a measure of risk, the higher the Beta, the greater the volatility

Comparison sector exposure and strategy

NameBankingEnergyStrategy
ZWB100%Call options
ZPR35.8%20.59%Preferred
shares
HPR50.41%21.62%Preferred
shares
XDV53.8%6.0%Diversified
CPD29.58%18.14%Preferred
shares
ZWC39.9%13.6%Call options
XEI 30.1%29.6%Diversified
VDY58.1%22.9%Diversified
CDZ 28.6%16.1%Diversified
FIE 83.54%5.14%Bank ETF
PDC 51.3%21.0%Diversified
ZDV 39.7%13.4%Diversified
XDIV 59.3%14.2%Diversified
DGRC31.8%6.7%Diversified
RBNK98.8%Bank ETF
RCD 32.7%13.9%Diversified
Source TD Market research

Comparison performance and dividend yield

SymbolDiv yield1 yr3 yrs*
ZWB5.4035.459.0
ZPR4.7628.184.66
HPR4.2830.324.67
 XDV3.8839.2711.73
CPD4.6421.984.05
ZWC7.1419.155.15
 XEI4.3033.019.80
 VDY3.8433.6011.14
 CDZ3.3033.6410.79
 FIE6.5632.459.86
 PDC4.1227.629.37
 ZDV4.1230.058.70
XDIV4.4826.938.85
 DGRC2.1121.869.85
 RBNK3.4549.4612.20
 RCD3.2428.088.94
Source Barchart Data as of August 5, * 3-year performance: Annualized rate as of July 30th (source: TD Market research

Comparison Morningstar rating

SymbolMorningstar rating
ZWB3 Star rating
ZPR4 Star rating
HPR3 Star rating
 XDV4 Star rating
CPD3 Star rating
ZWC2 Star rating
 XEI3 Star rating
 VDY5 Star rating
 CDZ3 Star rating
 FIE4 Star rating
 PDC4 Star rating
 ZDV3 Star rating
XDIV3 Star rating
 DGRC4 Star rating
 RBNK4 Star rating
 RCD3 Star rating

Source TD Market research

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Analysis and comments

Best Canadian Diversified Dividend ETF

In my opinion, XDV iShares Canadian Select Dividend Indx and VDY FTSE Canadian High Dividend Yield Indx are the best Canadian diversified dividend ETFs.

They combine low volatility, attractive returns, and good performance. VDY has a Morningstar Rating of 5 Stars and a low MER 0.21%!

Diversified Canadian Dividend ETFs are better in terms of long-term performance than their competitors below.

Best Canadian Dividend Preferred Share ETF

Comparison between Horizons HPR, BMO ZPR, and iShares CPD

In terms of performance, the above ETFs are very close, with a slight lead for HPR Horizons Active

Pref Share ETF. My favorite is BMO’s ZPR, though, because its management fee is lower at 0.50% versus 0.60% for HPR. ZPR is more diversified than HPR, which remains dominated by the banking sector.

Best Dividend ETF with a Covered Call Option Strategy

Comparison between ZWB BMO Covered Call Canadian Banks and ZWC – BMO CDN High Div Covered Call

Bank of Montreal offers two very popular ETFs in this category: ZWB and ZWC. ZWB invests mainly in the banking sector, while ZWC is more diversified. What’s unique about these ETFs is that they use covered calls to protect against downside risk.

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. In a nutshell, a covered call ETF will outperform its competitors in corrections and underperform in a market rally. I find this strategy to be well suited when used on a low volatility basket of securities.

In terms of dividend yields, ZWB and ZWC are both unbeatable. ZWB pays a dividend above 5%, and ZWC is at 7%. By analyzing historical performance, ZWB has had a better long-term performance than ZWC. It also offers a dividend yield above 5%. Therefore, I consider ZWB to be a good choice for this category.

Best Bank ETF (RBNK vs FIE)

Canadian Banks are known for their financial strength. Their Dividends are attractive and stable. FIE Ishares CDN Fin Mthly Income and RBNK RBC CDN Bank Yield Index are both great choices. If you want exposure to the Canadian banking industry focusing on earning dividends, these ETFs will undoubtedly answer your goals. Both pay a relatively stable monthly dividend.

RBNK has a lower MER than FIE. In terms of performance, RBNK offers a better total return than FIE. The only catch is that RBNK is probably less liquid than FIE. The latter (FIE) has assets under management of over 900 Million dollars while RBNK is relatively a small fund of only 171 Million.

How to choose a good dividend ETF

Total return: Though the focus here is on the dividend yield, you have to keep in mind the total return. The profit or loss we make on any investment combines both dividend income and capital gain or loss. Looking at the long-term performance of the fund is crucial. An ETF that provides a good capital appreciation with a high dividend yield is preferable.

Diversification: A diversified ETF is always a safer option. Some high yield ETFs are sector-specific (Financials, Energy or Gold). The ones focused on Energy and Gold have had an inferior long-term performance and carry high volatility risk.

Volume and liquidity of the ETF. The higher the asset under management, the lower the trading costs of the ETF (difference between the bid and ask price).

Management expense ratio.

ZWB – BMO Covered Call Canadian Banks

The ZWB aims to provide exposure to a portfolio of dividend-paying securities (Canadian Banks), while collecting premiums related to call options. The portfolio is chosen on the basis of the criteria below:

• dividend growth rate,

•  yield

• payout ratio and liquidity.

ZWB holdings

NameWeight
BMO Equal Weight Banks ETF27.2%
  Bank of Montreal12.9%
Canadian Imperial Bank of Commerce12.7%
Royal Bank of Canada12.1%
National Bank of Canada11.9%
  The Toronto-Dominion Bank11.9%
Bank of Nova Scotia11.4%

Source TD Market research July 30th

ZPR – BMO Laddered Pref Share ETF

The BMO Laddered Preferred Share Index ETF (ZPR) has been designed to replicate, to the extent possible, the performance of the Solactive Laddered Canadian Preferred Share Index, net of expenses. The Fund invests in and holds the Constituent Securities of the Index in the same proportion as they are reflected in the Index.

HPR – Horizons Active Pref Share ETF

The investment objective of the Horizons Active Preferred Share is to provide dividend income while preserving capital by investing primarily in preferred shares of Canadian companies. The ETF may also invest in preferred shares of companies located in the United States and fixed income securities of Canadian and U.S. issuers. The ETF, to the best of its ability, seeks to hedge its non-Canadian dollar currency exposure to the Canadian dollar at all times. HPR is a popular ETF and has asset under management in excess of 1 Billion dollars.

XDV – iShares Canadian Select Dividend Index ETF

XDV seeks long-term capital growth by replicating the performance of the Dow Jones Canada Select Dividend Index, net of expenses.

NameWeight
Canadian Imperial Bank of Commerce8.5%
Canadian Tire Corp Ltd Class A6.8%
Bank of Montreal6.3%
Labrador Iron Ore Royalty Corp6.2%
Royal Bank of Canada6.0%
BCE Inc4.7%
TC Energy Corp4.7%
Bank of Nova Scotia4.7%
The Toronto-Dominion Bank4.3%
National Bank of Canada3.9%

CPD – Ishares S&P TSX CDN Pref

Seeks to replicate the S&P/TSX Preferred Share Index, net of expenses.

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 portfolio

NameWeight
Enbridge Inc5.2%
Royal Bank of Canada5.1%
Canadian Natural Resources Ltd5.1%
The Toronto-Dominion Bank5.0%
BCE Inc5.0%
Suncor Energy Inc4.9%
TC Energy Corp4.8%
Bank of Nova Scotia4.8%
Nutrien Ltd4.5%
Bank of Montreal4.0%

Source TD Market research as of July 30th

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 holdings

NameWeight
Royal Bank of Canada14.1%
The Toronto-Dominion Bank12.5%
Enbridge Inc7.9%
Bank of Nova Scotia7.7%
Bank of Montreal6.5%
Canadian Imperial Bank of Commerce4.9%
TC Energy Corp4.7%
BCE Inc4.4%
Canadian Natural Resources Ltd4.1%
Manulife Financial Corp3.7%

Source TD Market research as of July 30th

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 holdings

NameWeight
Keyera Corp3.4%
SmartCentres3.0%
Pembina Pipeline Corp2.8%
Enbridge Inc2.8%
Canadian Natural Resources Ltd2.5%
Power Corporation of Canada2.4%
Fiera Capital Corp2.3%
Great-West Lifeco Inc2.1%
BCE Inc2.1%
Canadian Imperial Bank of Commerce2.1%

Source TD Market research as of July 30th

FIE – Ishares CDN Fin Mthly 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 holdings

NameWeight
iShares S&P/TSX Cdn
Prefr Shr ETF Comm
20.7%
iShares Core Canadian
Corporate Bd ETF
10.0%
Canadian Imperial Bank of Commerce9.1%
Royal Bank of Canada8.5%
The Toronto-Dominion Bank7.0%
Sun Life Financial Inc6.5%
Manulife Financial Corp6.5%
National Bank of Canada6.5%
Power Corporation of Canada6.0%

Source TD Market research as of July 30th

PDC – Invesco Canadian Dividend Index ETF

Invesco Canadian Dividend Index ETF seeks to replicate the performance of the NASDAQ Select Canadian Dividend Index. Don’t be confused with NASDAQ, the companies are 95% Canadian. The fund applies strict criteria to select only companies that have increased their dividend overtime and that offer a high yield.

PDC holdings

NameWeight
Enbridge Inc8.5%
Royal Bank of Canada7.9%
The Toronto-Dominion Bank7.9%
Bank of Nova Scotia7.8%
Bank of Montreal7.6%
Canadian Natural Resources Ltd4.2%
BCE Inc4.1%
TELUS Corp4.0%
TC Energy Corp4.0%
Canadian Imperial Bank of Commerce4.0%

Source TD Market research as of July 30th

ZDV – BMO Canadian Dividend ETF

BMO Canadian Dividend ETF seeks exposure to companies that exhibit growth in paying dividends. The fund has a large number of holding and allocates a maximum of 5% per position.

ZDV holdings

NameWeight
Enbridge Inc5.2%
Royal Bank of Canada5.0%
Bank of Nova Scotia5.0%
BCE Inc4.9%
The Toronto-Dominion Bank4.9%
Canadian Imperial Bank of Commerce4.7%
TELUS Corp4.0%
Bank of Montreal3.9%
Canadian National Railway Co3.9%
TC Energy Corp3.9%

Source TD Market research as of July 30th

XDIV – iShares Core MSCI Canadian Quality Dividend Index ETF

XDIV invests in Canadian stocks with strong financials. The companies selected pay above-average dividend yields and have either paid steady or increasing dividends.

XDIV holdings

NameWeight
Canadian Imperial Bank of Commerce9.4%
Royal Bank of Canada9.2%
Bank of Nova Scotia9.0%
TC Energy Corp8.9%
The Toronto-Dominion Bank8.8%
Manulife Financial Corp8.5%
Nutrien Ltd7.7%
Sun Life Financial Inc6.8%
Fortis Inc4.6%
Power Corporation of Canada4.0%
Source TD Market research as of July 30th

DGRC – CI WisdomTree Canada Quality Dividend Growth Index

CI Wisdomtree CDN Qlty Div Gwth Idx holdings provide exposure to dividend-paying Canadian companies with growth characteristics.

DGRC holdings

NameWeight
Rogers Communications Inc Class B5.3%
Thomson Reuters Corp5.2%
Royal Bank of Canada5.0%
Shaw Communications Inc Class B5.0%
Bank of Nova Scotia5.0%
Bank of Montreal5.0%
The Toronto-Dominion Bank5.0%
Canadian Imperial Bank of Commerce4.9%
TC Energy Corp4.9%
Canadian National Railway Co4.9%
Source TD Market research as of July 30th

RBNK – RBC CDN Bank Yield Index

RBC Canadian Bank Yield Index ETF seeks to replicate the Solactive Canada Bank Yield Index. The latter is focused only on the Canadian banking industry.

RBNK holdings

NameWeight
Canadian Imperial Bank of Commerce25.7%
Bank of Nova Scotia24.0%
Royal Bank of Canada16.6%
The Toronto-Dominion Bank15.9%
Bank of Montreal8.5%
National Bank of Canada8.0%
Source TD Market research as of July 30th

RCD – RBC Quant CDN Dividend Leaders

RBC Quant Canadian Dividend Leaders ETF seeks to provide unitholders with exposure to the performance of a diversified portfolio of high-quality Canadian dividend-paying equity securities that will provide regular income and that have the potential for long-term capital growth.

RCD holdings

NameWeight
Constellation Software Inc7.9%
Royal Bank of Canada6.4%
Enbridge Inc5.5%
Bank of Nova Scotia4.9%
The Toronto-Dominion Bank4.4%
BCE Inc4.3%
Canadian Imperial Bank of Commerce4.2%
Canadian National Railway Co3.6%
Barrick Gold Corp2.8%
Bank of Montreal2.4%
Source TD Market research as of July 30th