Best Dividend ETFs in Canada For 2024

When it comes to investing, there are alternatives to riding the individual stock rollercoaster. One of those options consists of the exchange-traded funds (ETFs). ETFs are collections of securities traded as one entity on the stock market, listed on stock exchanges, and traded daily like individual stocks. ETFs incorporate investments across multiple sectors, so they’re not typically as volatile as individual stock picks. Even more, sector-specific ETFs can help you better navigate highs and lows. In this article, we look at dividend ETFs, and the best picks for Canadian investors. Keep reading to learn more!

What are dividend ETFs?

A dividend ETF is an exchange-traded fund that is designed for investment in a selection of dividend-paying stocks. (Investopedia has a great explainer on dividend yields.)

Typically, these ETFs track a specific index that includes blue-chip type companies. These are recognized, well-established companies that are financially sound and considered lower risk. This type of ETF also favours companies that have a history of strong dividend increases over time.

The goal for dividend ETFs is to achieve high yields when investing in high dividend-paying common stocks, preferred stocks, or real estate investment trusts (REITs).

Related Reading: 7 Best High Yield ETFs in Canada

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Should I invest in dividend ETFs?

Whether dividend ETFs are right for you depends on where you are in life, your investing horizon, and your goals.

Overall, dividend ETFs are generally recommended for risk-averse investors who are looking to produce some degree of income. For starters, investors approaching retirement or who are already retired are typically looking for high yields in their portfolios. Dividend ETFs can help supplement their retirement income.

For investors hoping to keep more of their hard-earned money in their pockets, ETFs are certainly attractive. First, expense ratios — the annual fee charged to investors to cover administrative and operating costs — are lower for ETFs than the average mutual fund. Second, a good dividend ETF choice can save the time and effort you might have spent on researching individual stocks, with much better diversification baked in.

If you’re looking to make a quick profit going in and out of the market, dividend ETFs are not for you. However, if you want a reasonably reliable investment that should produce dividend income, dividend ETFs are a great choice.

Related Reading: Best Monthly Dividend Stocks in Canada

Are dividend ETFs a good investment?

For starters, it’s important to do some homework yourself or to work with a reputable advisor when selecting the best dividend-paying ETFs for your portfolio. Importantly, there are no guarantees of future performance. Reviewing ETFs that have good sector diversification, have demonstrated strong past results, and have reasonable fees can help you choose wisely.

Bank ETFs that focus specifically on the financial sector represents one of the ‘blue-chip’ types of ETFs that can provide stability. In fact, Canadian dividend ETFs typically hold significant financial stocks, given that the financial industry represents 28.6% of the TSX Index (as of June 2022).

As well, how you choose the best dividend ETF for you will also depend on market conditions and your investment timeline.

To compare performance, it’s important to look at not only dividends produced but also management fees – MER fees – which can vary between funds.

Related Reading: Cash ETF Canada

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What is an ETF screener?

The best way to decide which ETF is a good investment, and to get an overall view of performance, is with an ETF screener. Using a screener helps you compare and review the current and average performance of different ETFs. You can filter and narrow down your ETF options based on your criteria of interest.

Related Reading: 5 Best Money Market ETFs in Canada

What is the best Canadian ETF for dividends?

We’ve selected five funds that stand out as being the best Canadian ETFs for dividends. They are:

TickerMERAUM (CAD)Yield
TSX:HAL0.68%$122 million3.02%
TSX:XEI0.22%$1.57 billion5.06%
TSX:XDV0.55%$1.61 billion4.62%
TSX:ZDV0.39%$1 billion5.48%
TSX:CDZ0.66%$928 million3.91%
Note: All numbers are correct as of January 2024.

Horizons Active CDN Dividend ETF (TSX:HAL)

Of the five ETFs selected, Horizons Active CDN Dividend ETF is smaller and lesser-known, with current net assets of $122 million. The stated investment objective of HAL is to seek long-term total returns consisting of regular dividend income and modest long-term capital growth.

This ETF invests primarily in equity securities of major North American companies with above-average dividend yields. Just over 97% of its holdings are allocated to Canada. The fund’s risk profile is moderate, and MER fees are 0.68%. HAL has an estimated annualized yield of 3.02% paid out quarterly.

As a result, HAL is highly diversified across a wide variety of companies and industry sectors. The top-weighted sector is energy at 25.73%, with financial services comprising 25.56% of holdings, and real estate at 12.74%. In addition, mid-range percentage securities include industrial, telecommunications and utilities.

iShares Composite High Dividend Index ETF (TSX:XEI)

iShares S&P/TSX Composite High Dividend Index ETF strives to replicate the performance of the S&P/TSX Composite High Dividend Index. This fund has long-term growth goals, investing in Canadian companies operating across various sectors. This high-yield ETF pays out its dividend monthly and at 0.22%, has one of the lowest MER fees. It has $1.57 billion in assets and has an annual distribution yield of 5.06%.

XEI has a high concentration of exposure to the financial and energy sectors — 30.35% and 29.93%, respectively. While there are strong performing blue-chip stocks within the ETF, XEI offers less diversification than some of the other leading ETFs. As a result, if you have a longer-term investment horizon, this ETF has potential for growth based on high-yield dividend stocks.

Related Reading: Top 10 Mutual Fund Companies in Canada

iShares Canadian Select Dividend Index ETF (TSX:XDV)

iShares Canadian Select Dividend Index ETF seeks to replicate the performance of the Dow Jones Canada Select Dividend Index. Its goal is to create long-term capital growth by investing in 30 high-yielding Canadian companies in the Dow Jones Canada Total Market Index. XDV offers a large exposure to the financial sector and pays a monthly dividend income. The fund has a net asset value of $1.61 billion. It has MER fees of 0.55% and has an annual distribution yield of 4.62%.

XDV has a proven track record as a top performer, and it carries a medium-risk ranking. The Financial Services sector is heavily weighted in its portfolio (53.19%), with strong representation from Canada’s Big Banks. In smaller percentages, the fund includes investments in Communications Services and Utilities among its 30 holdings.

Ultimately, this fund should be attractive for those wanting the chance for higher dividend returns weighed against a slightly higher risk factor given the concentration in sectors.

BMO Canadian Dividend ETF (TSX:ZDV)

BMO’s ZDV fund, with net assets of $1 billion, will suit investors with slightly higher risk tolerance, looking for both income and growth in their portfolios. This fund focuses on dividend yield, targeting companies with top dividend payouts and those with the potential for long-term capital appreciation.

This fund is diversified, but primarily holds stocks from the financial and energy sectors among its top six securities (39.94% and 17.98% respectively). Stocks included in the ETF are assessed based on their three-year dividend growth rate, yield, and payout ratio. ZDV pays monthly dividends, has MER fees of 0.39%, and an annualized distribution yield of 5.48%. Finally, this ETF is a good choice since it’s 100% invested in Canada!

iShares Canadian Dividend Aristocrats Index Fund (TSX:CDZ)

Curious about the use of ‘aristocrat’ in the name? It actually designates stocks that have a proven track record of raising their dividends for at least five consecutive years. iShares S&P/TSX Canadian Dividend Aristocrats Index Fund, also managed by BlackRock Asset Management Canada, is one of the largest ETFs in the top five list, with net assets of $928 million and 90 holdings.

The investment objective of CDZ is to match the investment of the iShares S&P/TSX Canadian Dividend Aristocrats Index. As a result, it offers a portfolio of high-quality, dividend-paying Canadian companies operating across diversified sectors. The top three sectors represented are financials (30.69%), industrials (12.01%), and energy (10.34%). The fund has MER fees of 0.66%, has a monthly distribution frequency, and has a 3.91% distribution yield.

Read More: Best Canadian ETFs

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