13 Best Dividend ETFs in Canada (2022): Passive Income Made Easy

Looking for an easy way to generate some passive income? Buying dividend stocks is a good way to go. Better yet, look at buying dividend ETFs.

Tracking indices of dividend-paying stocks, Canadian dividend ETFs provide investors with the chance to grow your overall wealth by capital appreciation and monthly income through dividends from underlying companies. 

Picking out the best dividend ETFs in Canada can be challenging because the number of available ETFs keeps increasing each year. Each ETF has a unique strategy for providing investors with exposure to dividend income.

Here’s my list of the best Canadian dividend ETFs currently available.

13 Best Dividend ETFs in Canada

Best Dividend ETFs in Canada Infographic

Note that data is updated as of Jan 10, 2022:

1. Horizons Active Canadian Dividend ETF

horizons logo
  • Ticker: TSX:HAL
  • Fees: 0.67% MER
  • Dividend Yield: 3.07%
  • AUM: $98.5 million

Horizons Active Canadian Dividend ETF is one of the best Canadian dividend ETFs. Seeking long-term total returns, its approach consists of using reliable dividend-paying assets. The idea is to use consistent income and modest, long-term capital growth assets for consistent capital growth for investors. 

The ETF targets companies that do not just provide excellent appreciation, but also long-term dividend growth. It focuses on companies across various sectors and industries. The ETF focuses on stocks of major companies in North America that offer a higher than average dividend yield and have excellent prospects of increasing dividends. To this end, the ETF can hold up to 10% of fixed-income securities as well.

2. BMO Canadian Dividend ETF

  • Ticker: TSX:ZDV
  • Fees: 0.38% MER
  • Dividend Yield: 3.97%
  • AUM: $431.2 million

BMO Canadian Dividend ETF is another excellent entry on the list of the best dividend ETFs in Canada. Issued by the Bank of Montreal, this income-producing asset seeks to provide investors with the chance to benefit from exposure to the performance of a yield-weighted portfolio of Canadian dividend-paying stocks. 

The ETF focuses on targeting a portfolio of Canadian equity securities with the potential of healthy long-term appreciation and dividend growth. The ETF provides its investors with monthly dividend income from the underlying diversified dividend-paying assets. The medium-risk ETF has had a fantastic performance over the years, and it provides investors with a relatively reliable income.

3. iShares S&P/TSX Canadian Dividend Aristocrats Index ETF

ishares logo
  • Ticker: TSX:CDZ
  • Fees: 0.66% MER
  • Dividend Yield: 3.17%
  • AUM: $1.021 billion

iShares S&P/TSX Canadian Dividend Aristocrats Index ETF is among the best dividend ETFs in Canada that seeks to replicate the performance of the S&P/TSX Canadian Dividend Aristocrat Index before expenses and fees. 

This index primarily consists of dividend-paying stocks or income trusts listed on the Toronto Stock Exchange that are constituents of the S&P Canada Broad Market index. The equity securities in the index are selected based on a reliable track record of annually increasing dividend payments for at least the last five years, providing investors with a growing overall income with each passing year. The ETF pays its investors their dividends every month.

Related reading: Best All-In-One ETFs in Canada

4. iShares Core S&P/TSX Composite High Dividend Index ETF

  • Ticker: TSX:XEI
  • Fees: 0.22% MER
  • Dividend Yield: 3.74%
  • AUM: $1.54 billion

iShares Core S&P/TSX Composite High Dividend Index ETF is an ETF managed by BlackRock Asset Management Canada Ltd., and it seeks to provide investors with an exposure to the income from high-quality dividend-paying stocks in Canada. 

The ETF provides a monthly dividend income to investors through its focus on a diversified portfolio of Canadian companies in its holding that have excellent long-term capital growth potential across various sectors of the economy. 

Designed to be a long-term foundational holding, it is a low-cost ETF with a relatively high risk and high reward approach by replicating, to the extent possible, the performance of the S&P/TSX Equity Income Index.

5. iShares S&P/TSX 60 Index ETF

  • Ticker: TSX:XIU
  • Fees: 0.18% MER
  • Dividend Yield: 2.55%
  • AUM: $10.73 billion

iShares S&P/TSX 60 Index ETF is among the best Canadian dividend ETFs that seeks to provide investors with a dividend income by replicating the performance of the S&P/TSX 60 Index, to the extent possible. 

Launched and managed by BlackRock Asset Management Canada Ltd., the ETF has a significant place in history as being the first-ever ETF to begin trading in the world. It is also the largest and most liquid ETF. 

It has a focus on long-term capital appreciation by replicating the S&P/TSX 60 Index, which consists of 60 of the largest companies listed on the Toronto Stock Exchange, and it provides investors with exposure to each of the ten sectors through its portfolio.

6. iShares Canadian Select Dividend Index ETF

  • Ticker: TSX:XDV
  • Fees: 0.55% MER
  • Dividend Yield: 3.56%
  • AUM: $1.173 billion

iShares Canadian Select Dividend Index ETF seeks to replicate, to the extent possible, the performance of the Dow Jones Canada Select Dividend Index, net of expenses. It is another ETF launched and managed by BlackRock Asset Management Canada Ltd., and it seeks to provide investors with strong long-term capital appreciation. 

While the underlying assets within the ETFs holdings consist of diversified assets across various sectors of the economy, there is a larger share of investment in the financial sector, with more than 50% weightage for the finance sector. The ETF seeks to provide exposure to 30 high-quality companies in Canada that have a high dividend yield.

7. Vanguard FTSE Canadian High Dividend Yield Index ETF

  • Ticker: TSX:VDY
  • Fees: 0.21% MER
  • Dividend Yield: 3.83%
  • AUM: $1.14 billion

The Vanguard FTSE Canadian High Dividend Yield Index ETF is the next entry on the list of the best dividend ETFs in Canada. This ETF tracks, to the extent possible, the performance of the FTSE Canada High Dividend Yield Index before fees and expenses. The index consists of various Canadian equity securities that have a high dividend yield. 

The ETF employs a passively managed approach to high dividend yield large-, mid-, and small-market capitalization Canadian stocks diversified across various sectors of the economy. The ETF uses efficient and cost-effective index management techniques and pays investors monthly dividends.

Related reading: Best Bond ETFs in Canada

8. iShares Core MSCI Canadian Quality Dividend Index ETF

  • Ticker: TSX:XDIV
  • Fees: 0.11% MER
  • Dividend Yield: 4.16%
  • AUM: $469.34 million

The iShares Core MSCI Canadian Quality Dividend Index ETF seeks to replicate, to the extent possible, the performance of the MSCI Canada High Dividend Yield 10% Security Capped Index. It seeks to provide investors with long-term capital appreciation by selecting a portfolio of securities with a high-quality balance sheet and a track record of consistent earnings in the past. 

The stocks that comprise the ETF have the common characteristic of growing dividends and above-average dividend yields. Designed to be a long-term core holding, XDIV focuses entirely on Canadian assets in its portfolio with a significant allocation to equities in the financial sector.

9. Invesco Canadian Dividend Index ETF

  • Ticker: TSX:PDC
  • Fees: 0.56% MER
  • Dividend Yield: 4.15%
  • AUM: $774.97 million

Invesco Canadian Dividend Index ETF seeks to replicate, to the extent possible, the performance of the NASDAQ Select Canadian Dividend Index before expenses and fees. The fund’s portfolio primarily consists of Canadian equity securities with a high liquidity and a reliable track record of growing dividend payouts. 

The fund has a 95% exposure to Canadian companies divided between equities and income trusts, but it also allocates 5% to companies from other countries around the world. It has a portfolio diversified across various sectors, and it pays investors monthly dividends.

10. BMO Canada High Dividend Covered Call ETF

  • Ticker: TSX:ZWC
  • Fees: 0.72% MER
  • Dividend Yield: 7.20%
  • AUM: $1.13 billion

The BMO Canada High Dividend Covered Call ETF is a fund that invests in some of the highest quality companies in Canada that provide substantial dividend income to investors and provide long-term portfolio growth through capital appreciation. 

The ETF typically has a higher yield, and it would carry a more substantial degree of risk, but it mitigates the downside risk for investors by using covered call options. It holds long positions on the assets within its portfolio and writes call options on the assets. 

The strategy also diminishes gains if the price moves above the strike price, but the fund’s high dividend yield compensates for it. The fund’s focus on Canadian dividend-paying stocks also makes it eligible to benefit from tax credits through accounts like the Tax-Free Savings Account (TFSA).

11. CI WisdomTree Canada Quality Dividend Growth Index ETF (DGRC.TO)

  • Ticker: TSX:DGRC
  • Fees: 0.24% MER
  • Dividend Yield: 2.14%
  • AUM: $438.1 million

This CI fund seeks to replicate, to the extent possible, the performance of the WisdomTree Canada Quality Dividend Growth Index, net of fees and expenses. 

The fund invests in equity securities of the largest Canadian companies with high liquidity and decent dividends.

Ideal for investors who seek regular quarterly cash flow and can handle medium risk to their portfolios, the fund provides investors with exposure to a diversified portfolio of Canadian dividend-paying companies.

Several smaller CI funds were rolled up into this fund in 2021, such as CI First Asset Morningstar Canada Dividend Target 30 Index ETF (TSX: DXM), and CI First Asset Canadian Buyback Index ETF (TSX: FBE).

12. BMO Ultra Short-Term Bond ETF

  • Ticker: TSX:ZST
  • Fees: 0.16% MER
  • Dividend Yield: 2.61%
  • AUM: $1.09 billion

The BMO Ultra Short-Term Bond ETF is a fund that seeks to provide investors with exposure to a wide moat of fixed-income securities that have a year or less for reaching effective term to maturity. ZST may invest directly in fixed income securities, including government bonds, corporate bonds, provincial bonds, and municipal bonds. 

It may also invest in money market instruments, other ETFs, or public investment funds and derivative instruments. The fund may also invest in floating rate instruments and preferred shares as well as other fixed-income securities. While it is not a high-yield product, it provides predictable, stable, and nearly guaranteed positive returns for unitholders.

Related Reading: Best ETFs in Canada

13. CI Active Canadian Dividend ETF Common

  • Ticker: TSX:FDV
  • Fees: 0.92% MER
  • Dividend Yield: 3.28%
  • AUM: $5.14 million

The CI First Asset Active Canadian Dividend Common Unit ETF is a fund that seeks to provide unitholders with long-term returns through healthy capital appreciation and regular dividend income. The fund consists of an actively managed portfolio of primarily dividend-paying and other securities issued by Canadian companies on the Toronto Stock Exchange. 

Providing monthly dividend payments to unitholders, up to 30% of the fund’s asset allocation can be towards foreign securities. The overall portfolio is heavily diversified across all ten sectors of the economy.

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Conclusion

A majority of the best Canadian dividend ETFs consists of ETFs launched by BlackRock Asset Management because it is one of the country’s most prominent portfolio managers, and it manages some of the leading funds in Canada.

There are significant ETFs issued by other providers available as well. Each of them has a unique strategy to provide unitholders with capital growth through the appreciation of the underlying dividend stocks and dividend growth.

The right knowledge of the best Canadian dividend ETFs in Canada should make it easier to pick out the ideal ETFs that you can add to your portfolio. I hope you found this article useful to help you meet your goals of creating a robust overall ETF portfolio.

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Author Bio - Christopher Liew is a CFA Charterholder with 11 years of finance experience and the creator of Wealthawesome.com. Read about how he quit his 6-figure salary career to travel the world here.

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31 thoughts on “13 Best Dividend ETFs in Canada (2022): Passive Income Made Easy”

  1. #11 in the article is CI WisdomTree Canada Quality Dividend Growth Index ETF (DGRC.TO), but it shows a fund with ticker DXM on the image.

    Reply
  2. In case this is helpful, here are a couple of funds to consider that only hold shares in the big six banks (Tickers: PIC-A and PIC-PR.)

    The funds are tied together by a split-share structure. This means that the PIC-PR fund is set up to yield dividend income while PIC-A is set up to earn capital gains and a tiny amount of dividends (if any) for investors.

    Once PIC-PR reaches its 5.6% dividend income target, the remaining dividends that are earned are funnelled into the PIC-A fund. Hence, PIC-A has more upside (and downside) potential.

    I looked at the distribution breakdown of each of the funds for the past several years.

    The PIC-PR fund is usually 94-100% dividends; the remainder is ROC.

    The PIC-A fund is usually entirely ROC. There is no capital gains as you would expect. So, the way it achieves its capital gains objective is when the fund is sold. All the ROC payments are tax-free, but at the same time, the ROC payments lower the investor’s cost base, making the capital gain higher when the fund is finally redeemed.

    The fund prices are designed to be relatively constant — around $15 for the PIC-PR fund. So the funds are not likely to have large gains or losses from price fluctuations when they are sold.

    Here is the link to the fund company:

    https://mulvihill.com/overview.aspx?fund_id=7

    Reply
  3. Hi Chris,
    Thank you very much for writing this article.
    I am planning to buy bond/fixed income/dividend-paying ETFs for my TFSA, but I am confused and scared!! I want to pick the ones that make my TFSA portfolio balanced (weighted towards generating income:)). My TFSA (60k) is for retirement (period around 20-20 years).
    I have a mix of XHY or CHB (not sure which one)+ ZAG+ZFH (not sure)+ ZWC/ZWG (not sure) in mind. I prefer index ETFs (passive) with low MERs. I am not sure about the strategy, index, and MERs of ZFH/ZWC/ZWG/XHY/CHB. Some of these ETFs look active (rather than passive) to me, maybe I am wrong!
    I would be grateful if you let me know your thoughts on these or suggest any ETF with a low MER and proven record that follows a good index for my TFSA.
    Thank you very much.
    Sara

    Reply
    • Sara,

      I would say that in general, the lower the MER, the more passive the fund is.

      The ZWC fund and all the other BMO Covered Call “Z” funds have a relatively higher MER because they have to manage the covered-call contracts they write.

      These contracts protect you from a downward market, but also supress capital gains in unexpected upward spikes in the market.

      However, the covered call contracts also produce their own capital gains (paid out as ROC) when they are successful. That’s what limits the losses in a downward market.

      In 2021, the ROC component of the ZWC distributions was 59%. That suggests that the contracts were beneficial because the ROC component for other similar ETFs (that have much the same holdings) is about 5%.

      Reply
      • Yes, but if you have more money to invest than your TFSA can hold, there is a tremendous advantage to allocating the Canadian dividend-paying investments outside the TFSA (and your growth investments inside the TFSA).

        For example, if you live in Ontario, and your “taxable income” (line 26000) is under $49,000 your tax rate on dividends is negative 5%. If it is under $90,000, your tax rate on dividends is negative 1%. So, your tax refund will actually increase when you enter your dividend income into your tax program.

        But keep in mind, when you earn $100 in dividends, your tax program will actually gross it up to $138 for line 26000 which bumps you to the next tax bracket sooner.

        Reply
  4. The BMO Canadian High Dividend Covered Call ETF just cut its June/2021 dividend from 11 cents to 10 cents per share. That’s a surprise since the markets, especially the Canadian ones, have been pretty good for the past year.

    Reply
  5. Chirtospher,

    While you were finding the BMO document on Call Options, I found this excellent YouTube video which reinforces what the BMO document states.

    https://www.youtube.com/watch?v=1gXlr18gWSY

    I have a much better understanding of how covered calls work, but it leaves me with many more questions.

    From what I learned, When a fund manager sells a covered call option, it receives income for that sales cointract. When that contract expires, that income lowers the cost base of the stock which contributes to higher capital gains when the stock is sold. Likewise, that same income can also reduce capital losses.

    That said, I do not see how the income from the covered call can contribute to dividend income nor interest income unless the fund manager is holding cash. Yet interest income is common in all the dividend ETFs I have seen.

    Reply
  6. Does the high dividend yield of the BMO Canada High Dividend ETF come entirely from the ETF’s holdings or does some of it come from the covered call options? And where does its interest income come from?

    Reply
      • I checked the distribution breakdown on Morningstar which shows interest. Click on the “Distributions” tab next to “Performance.”
        https://www.morningstar.ca/ca/report/etf/performance.aspx?t=0P00019S2Q&lang=en-CA

        Also, distributions are paid out monthly in equal sizes as shown on the Globe and Mail website. Click on the “Corporate Actions” tab:

        https://www.theglobeandmail.com/investing/markets/stocks/ZWC-T/performance/

        I assume that either the first or last distribution of the year is the interest component.

        The BMO website says, “the option premium provides limited downside protection. ”
        https://www.bmo.com/gam/ca/advisor/products/etfs?fundUrl=/fundProfile/ZWC#fundUrl=%2FfundProfile%2FZWC

        I am definitely going to buy this ETF! (BTW, BMO has other similar covered calls ETFs, but this one has the highest yield)

        Thanks for the info!

        Reply
        • Ah I see now, yes that makes sense. Thanks for digging into that, the interest income it shows there is a bit confusing. I wouldn’t think it would be taxed as interest income though, but you might want to double-check that.

          Reply
          • I just purchased the BMO ETF today, so I will know exactly what the breakdown of the distribution is next year. I will let you know If there are any surprises. (Sometimes Morning Star is wrong.)

            But getting back to my original question. The reason why I asked if the options contribute to the dividend yield is because, the yield is significantly higher than any other similar ETFs even though they hold many of the same stocks; (admittedly in different proportions). So I was wondering what factor is most responsible for the higher yield

          • Great question, I had to look it up. I believe it does. See this here https://www.bmoetfs.ca/uploads/covered_call_option_strategy_eng-22.pdf it says “The covered call option strategy, also known as a buy–write strategy, is designed to provide an investor with a double source of income: an option premium plus the dividend yield. The strategy is implemented by writing (selling) a call option contract, while owning the underlying stock. It is considered an income enhancement strategy because it generates additional cash flows compared to only owning the underlying stock.

      • I finally got my answer why the dividend yield for ZWC is so high. Ιt’s not!

        Over half of the distribution during 2020 amounts to ROC. The remainder is dividend income. That’s why the distribution of this ETF is twice as high as other similar ETFs that hold the same stocks.

        This is not good news if you are trying to take advantage of the dividend tax credit in a non-registered account, but it is fine if you are simply looking for a consistent high stream of income in a tax-efficient manner.

        The Morningstar data that shows interest in the distribution is not correct.

        The true distribution breakdown is shown on the BMO website (second table at the bottom) but it shows blank for the current year. If you change the year to 2020 or earlier, you will see that ROC is high for all years — sometimes over 50%. This seems to be true for all BMO Covered call ETFs.

        https://www.bmo.com/gam/ca/advisor/products/etfs?fundUrl=/fundProfile/ZWC!hash!tax%26distributions#fundUrl=%2FfundProfile%2FZWC%23tax%26distributions

        Apparently, it is common in the ETF industry to pay out a certain amount of ROC to maintain a consistent income stream as the BMO states below:

        Tax considerations for the BMO ETF family:
        https://www.bmo.com/assets/gam/docs/BMO%20ETF%20Taxation.pdf

        … As a consideration that generally applies to the
        ETF industry … a portion of the cash
        distribution may represent a return of capital (ROC), which
        is not taxable ….

        … The ETF will then pay out the cash components received as part of
        its distribution to maintain the ETF’s yield. This will result in a
        small amount of ROC.

        Equity ETFs:
        Generally for an equity only ETF, the cash distributions will
        include dividends and a small amount of ROC …

        Reply
          • Now that I received my 2021 tax slip for the BMO CDN Hi Dividend Covered-Call ETF (ZWC), I just want to provide an update on my findings.

            Indeed, the fund distributions do not have the high dividend yield as claimed because most of the distributions are made up of original investor capital (ROC).

            From the $1.25 annual distribution amount (per unit), 41% of that was in dividends and 59% was ROC. (Typical ROC for similar ETFs is around 5%).

            There is no interest income as Morningstar reports and the dividend yield of the fund comes out to about 3.2%. The remaining 4.5% of the yield is ROC.

            At first, I was cynical about the large ROC component because it appeared that the fund was exaggerating its returns with investors’ original capital. That’s not true.

            ROC is merely capital gains on a tax-deferred basis. Once the fund is sold, you end up in the same financial position. That’s because the ROC of a distribution not only reduces the unit price of a fund, but it also reduces the ACB by the same amount.

            The capital gains field (box 21) of the T3 slip is blank but the ROC field (box 42) and dividend fields (boxes 24,25,26) are filled in. The same is true for past years too.

        • In response to my own comment above, I would like to bring to light that ROC does not exaggerate the fund’s returns with investors’ original capital as I thought.

          I did the math and discovered that ROC is actually capital gains that are deferred. It works that way because ROC lowers the average cost base (ACB) which effectively produces higher capital gains when the fund is sold.

          Of course, there is still the issue that the fund’s (ZWC) dividend yield is nowhere near 7%, but the annual distribution itself is.

          Reply
  7. Was of great interest to read your list of divided ETFs.

    Do you have a list of Canadian dividend ETFs that pay monthly dividends that you can post?

    Look forward to seeing your list!

    Reply
  8. Very informative. I’ve just recently retired and just getting my feet wet in trading investment. I heard of dividend investing and now the monthly dividend ETF’s. I need a regular monthly return on my investment. How would I know if an ETF is giving monthly dividend? Please let me know. I’m new to this and I’m still feeling my way around. Thanks a lot.

    Reply
    • Having looked into this for about a year, you can roughly estimate that the dividend portion of the annualized monthly income that the fund produces will be roughly 3-4% of the fund price at the beginning of the year. It cannot really be much higher because it must be consistent with what the underlying stocks pay out in dividends. The funds cannot produce dividends on their own.

      If the annualized monthly income is higher, that extra amount is likely capital gains (shown as ROC on your T3 slip) which is something the funds can produce on their own by buying and selling, and writing covered call contracts and the like.

      Of course, keep in mind that every fund is different with different strategies and objectives.

      Reply
  9. For a 60 year old who doesn’t care about the stock price increasing but looking at the dividends … it sounds like zwc would be a safer etf than xei .. but I am giving up growth of etf?

    Reply
  10. Awesome read, as both my wife and I as well as our 20yr young daughter all have atleast 2 of these etf stocks in our portfolio.

    Looking towards building our passive income towards financial freedom.

    Reply

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