11 Best Dividend ETFs in Canada For Consistent Income in October 2023

Want to invest in dividend stocks in Canada but don’t want the hassle of managing a portfolio?

Dividend ETFs can be a great hands-off approach to receive regular income and diversify your holdings at a low cost.

Dividends can be a huge portfolio booster. Between 1930 and 2021, dividends contributed roughly 40% towards the total return of the S&P 500 Index. 

Below is our list of the best dividend ETFs in Canada.

Are Dividend ETFs Worth the Fees?

For the right investor, dividend-focused ETFs are worth the MERs that they charge for several reasons. 

Like most ETFs on the list below, dividend-focused strategies usually have at least 50 underlying stock holdings. The number of stock holdings can increase to several hundred in some cases, which provides an even higher level of diversification. Choosing and monitoring even 50 dividend stocks is a difficult task for most investors.

Dividend reinvestment plans (DRIPs) are also another great feature of most dividend ETFs. This allows you to automatically reinvest any received dividends back into the ETF once they are paid out. For a self-picked stock portfolio, you are left with making the decision several times a year for each stock.

Dividend ETFs are often structured to enhance tax efficiency, which reduces capital gains compared to traditional mutual funds.

ETFs can provide specialized exposure, enabling investors to target specific sectors, regions, or themes with precision.

Constructing a well-built portfolio will require you to invest globally in most cases. Doing stock research on dividend-paying companies in different countries can be a very difficult task for most investors. Building a well-diversified portfolio from a geographical perspective is easy through dividend ETFs.

If you’re a hands-off investor looking for an easy way to diversify your investments at a low fee and earn income, dividend ETFs could be the perfect fit for you.

Downsides of Dividend ETFs

While dividend ETFs can be attractive for their income potential and diversification benefits, they also come with some downsides:

1. Expense Ratios: Even if they’re relatively low, the fees associated with dividend ETFs can eat into returns over time, especially when compared to owning individual stocks with no ongoing management fees.
2. Interest Rate Sensitivity: Dividend ETFs can be sensitive to changes in interest rates. When rates rise, dividend-paying stocks might become less attractive relative to bonds, leading to potential price declines.
3. Lack of Capital Appreciation: While dividend ETFs focus on income, they might not always prioritize capital appreciation. This could result in missed growth opportunities compared to broader market ETFs.
4. Dividend Sustainability: Not all dividends are sustainable. If an ETF is chasing high yields without considering the sustainability of those dividends, there’s a risk of dividend cuts which can negatively impact the ETF’s price.
5. Potential for “Yield Traps”: Some stocks have high yields because their prices have fallen due to business challenges. An ETF focused solely on high yields might inadvertently invest in these “yield traps,” risking capital depreciation.

Key Features to Consider For Dividend ETFs

Here are some of the primary factors to evaluate before choosing your dividend ETF:

• Yield: The yield is the annual dividend income an investor receives, expressed as a percentage of the ETF’s price.
• Management Expense Ratio (MER): MER contributes significantly to the total cost of holding an ETF. Try to choose ETFs with lower MERs, as this can save you money and potentially enhance your overall returns.
• Size and Liquidity: Larger ETFs often provide better liquidity, allowing easier trading at a lower cost. Evaluate the assets under management and the average daily trading volume of the ETF you want to purchase.
• High-yield vs. Dividend Growth: High-yield ETFs typically deliver higher income, while dividend growth ETFs focus on companies with the potential for consistent dividend increases.
• Risk Rating: Assess the risk rating of the ETF to ensure it aligns with your investment goals and risk tolerance. Lower-risk ETFs might provide more stability but limit return potential compared to higher-risk funds.
• Distribution Frequency: Take note of the ETF’s distribution frequency, which can be monthly, quarterly, semi-annually, or annually. Determine which payout schedule best suits your income needs.

By considering these key features, you can select a dividend ETF in Canada that best aligns with your investment objectives and preferences while striving for a strong, income-generating portfolio.

Best Dividend ETFs in Canada

• iShares US High Dividend Equity ETF (XHU.TO)
• Manulife Smart Dividend ETF (CDIV.TO)
• Vanguard U.S. Dividend Appreciation Index ETF (VGG.TO)
• BMO US Dividend ETF (ZDY.TO)
• Fidelity Canadian High Dividend ETF (FCCD.TO)
• BMO Canadian Dividend ETF (ZDV.TO)
• BMO International Dividend ETF (ZDI.TO)
• Fidelity International High Dividend Index ETF (FCID.TO)
• Invesco Canadian Dividend ETF (PDC.TO)
• TD Q Global Dividend ETF (TQGD.TO)
• RBC Quant Canadian Dividend Leaders ETF (RCD.TO)

1. iShares US High Dividend Equity ETF

XHU from iShares is a US high-dividend strategy available as an ETF in Canada. The ETF is passively managed and invests in US stocks with a focus on dividend yield. The index that it tracks is the Morningstar Dividend Yield Focus Index.

XHU is the unhedged version of the strategy, so your total returns will be impacted by changes in the exchange rate between the US and Canadian dollars. XHD is the ETF ticker for the same strategy that is currency hedged. 

XHU has a medium-length performance track record. The strategy’s yield is fairly low, despite the focus on US dividend-paying companies.

This ETF also pays out distributions on a monthly basis, similar to fixed-income funds. The fund has roughly 75 underlying stock holdings, providing a decent level of diversification.

XHU is focused on sectors such as health care, energy, and consumer staples. XHU is assigned a medium risk rating by iShares, which again is in line with most dividend strategies.

If you are looking for a vanilla, US-focused dividend strategy on the Canadian ETF shelf, XHU is a great one to consider.

2. Manulife Smart Dividend ETF

Manulife’s CDIV ETF is one of the lowest-cost, dividend-focused ETFs accessible to investors in Canada. It follows an active and quantitative strategy with constant involvement from the portfolio managers.

CDIV invests exclusively in dividend-paying Canadian stocks. It has a very short performance track record but has grown to a fairly large size in a short while. 

The ETF offers a great yield, with distributions being paid to investors on a quarterly basis. CDIV is fairly well-diversified, with around 60 different Canadian stock positions.

Since the Canadian market is heavily concentrated in select sectors, this is also reflected in the ETF’s top sectors. The top sectors of CDIV include financials, materials, and energy.

The ETF is assigned a medium risk rating from Manulife, which is in line with most dividend-focused strategies.

Aside from the short performance track record, Manulife’s Smart Dividend ETF has excellent overall features. Accessing a quantitative and active strategy at one of the lowest MERs for a dividend ETF in Canada is an amazing offer from Manulife.

3. Vanguard U.S. Dividend Appreciation Index ETF

Vanguard’s VGG ETF is another low-cost dividend-focused ETF available to Canadians VGG invests in US stocks that have a record of increasing their dividends over time. It is a passive strategy that follows the S&P U.S. Dividend Growers Index.

VGG is the unhedged version of Vanguard’s strategy, exposing you to currency rate shifts between the US dollar and the Canadian dollar. 

VGH is the ETF ticker for an identical strategy that removes currency fluctuations from the equation.

VGG has a fairly long track record and is a large ETF in terms of assets under management. It pays a relatively lower yield because of the strategy’s focus on dividend growers as opposed to high-dividend-paying companies.

The ETF pays out quarterly distributions to its investors. In terms of diversification, it is a very well-diversified strategy with just under 300 US stock holdings.

The US market is many times larger and more diverse than Canada’s market from a sector perspective. Since the strategy focuses on dividend growers, the fund’s top sectors are industrials, health care, and financials.

VGG is assigned a medium risk rating from Vanguard, which is similar to most dividend strategies.

If you are willing to accept a lower yield from your dividend ETF in exchange for investing in companies that offer a growing dividend over time, VGG is a great choice. 

4. BMO US Dividend ETF

BMO’s ZDY ETF is a well-priced ETF available to Canadians that comes with a lot of options. ZDY takes a rules-based approach to investing in US dividend-paying stocks that are based on the dividend growth rate, yield, and dividend payout rate. 

ZDY is the unhedged version of the strategy, meaning that your returns will be impacted by currency fluctuations between the US and Canadian dollars. 

ZUD is the ticker for the same strategy, with the currency impact hedged out. ZDY.U is the US dollar version of the strategy, meaning it can be purchased on the US side of your accounts.

ZDY has a long track record and is a large ETF in terms of assets. The strategy’s yield is decent but on the lower end of how much dividend-focused ETFs typically pay.

The ETF pays out distributions to investors on a monthly basis, which is a nice differentiator from dividend funds which pay distributions quarterly. With around 100 stock holdings, it is well-diversified.

By again investing in US companies, the strategy is heavily exposed to sectors such as health care, information technology, and financials. 

ZDY is assigned a low to medium risk rating from BMO. While this may be appealing to investors, any type of equity fund should generally be accepted as carrying at least a medium level of risk. The low to medium risk rating is likely to understate the fund’s true risk.

If you are looking for a rules-based approach with a lot of flexibility in terms of investment options (hedged and USD options), ZDY is an excellent choice to consider.

5. Fidelity Canadian High Dividend ETF

The FCCD ETF offered by Fidelity is a high dividend strategy that focuses on Canadian companies. The ETF is passively managed and tracks the Fidelity Canada Canadian High Dividend Index.

FCCD has a very short performance track record but has grown to a fairly large size in a short period of time. The ETF’s MER is on the lower end of the dividend-focused ETF category in Canada.

FCCD pays out distributions to investors on a monthly basis and offers a decent dividend yield. Relative to other Canadian dividends ETFs like CDIV, this yield is substantially lower. The fund has roughly 65 underlying stock holdings, offering a decent level of diversification.

The ETF is again biased towards prominent sectors in the Canadian market. Its top sectors include financials, energy, and communication services. FCCD is assigned a medium risk rating by Fidelity, which is standard for most dividend-focused equity ETFs.

If you are looking to target the Canadian market with a high dividend bias, FCCD is a great ETF to consider alongside others, such as CDIV and ZDV.

6. BMO Canadian Dividend ETF

Using a similar approach as the one for ZDY, ZDV instead focuses on Canadian dividend-paying stocks. ZDV takes a rules-based approach to invest in stocks that are based on dividend growth rate, yield, and dividend payout rate. 

ZDV has a long performance track record and is a very large ETF in terms of assets under management. The ETF’s MER is on the lower end of the dividend-focused ETF category in Canada.

ZDV pays out distributions to investors on a monthly basis and offers a great dividend yield. The dividend yield is currently second only to CDIV. 

The fund has roughly 50 underlying stock holdings, making it relatively concentrated when compared to other ETFs on our list. In reality, it still offers an adequate level of diversification for investors.

Like other Canadian ETFs on our list, ZDV has similar sector biases as the overall Canadian market. Its top sectors include financials, energy, and utilities. ZDV is assigned a medium risk rating by BMO.

With a great yield and excellent overall features, ZDV is an excellent choice as a Canadian ETF that focuses on Canadian high-dividend companies.

7. BMO International Dividend ETF

BMO offers a great international dividend strategy to Canadians through its ZDI ETF. ZDI takes a rules-based approach to investing in stocks that is based on dividend growth rate, yield, and dividend payout rate.

International strategies are crucial portfolio-building blocks that help to ensure your investments are globally diversified.

ZDI has a medium-length performance track record and is a large ETF in terms of assets. The ETF’s MER is relatively higher than most of the ETFs on our list, likely due to its international coverage.

ZDI pays out distributions to investors on a monthly basis and offers one of the highest dividend yields among the dividend ETFs on our list. 

The fund has approximately 100 stock holdings, making it well diversified from a stock perspective.

As an international strategy, ZDI does not have any major country-specific bias. With that said, its top sectors include financials, healthcare, and industrials.

With excellent features across the board, ZDI is an amazing dividend ETF on the Canadian shelf to consider for your portfolio.

8. Fidelity International High Dividend Index ETF

Fidelity’s FCID ETF is an internationally-focused dividend strategy available on the Canadian ETF shelf. FCID is passively managed and tracks the Fidelity Canada International High Dividend Index.

The international geographical scope makes strategies like FCID very important when building a well-rounded portfolio that is properly diversified globally.

FCID has a short performance track record and is a fairly small ETF in terms of assets under management. The ETF is likely not small enough to put it at risk of closing down.

The ETF’s MER, because of its international mandate, is higher than most MERs on our list. FCID pays out distributions to investors on a monthly basis and offers an excellent dividend yield. 

The fund has just over 100 stock holdings, making it well diversified from a stock perspective.

As an international strategy, FCID again does not have any major country-specific bias. Its top sectors include financials, communication services, and real estate.

Although small in assets and with a short performance track record, FCID is important to consider as a dividend-focused ETF in Canada due to its international mandate.

9. Invesco Canadian Dividend ETF

Invesco’s PDC ETF is another dividend-focused Canadian stock strategy. PDC is passively managed and tracks the NASDAQ Select Canadian Dividend Index.

PDC has a long performance track record and is a very large ETF in terms of assets under management. The ETF’s MER is relatively high compared to other Canadian dividend strategies on our list, especially since the ETF is passively managed.

PDC pays out distributions to investors on a monthly basis and offers an excellent dividend yield. The ETF has one of the highest dividend yields among the ETFs on our list and the highest among Canadian-focused dividend ETFs.

The fund has roughly 45 underlying stock holdings, making it one of the most concentrated mandates on our ETF list. 

The sector biases of the ETF match overall Canadian market biases. The ETF’s top sectors include financials, energy, and communication services. PDC is assigned a medium risk rating by Invesco, which is fairly standard for a dividend-focused ETF.

Aside from the high MER, PDC comes with great features and a high dividend yield. It’s a good choice to consider for Canadian dividend stock exposure in your portfolio.

10. TD Q Global Dividend ETF

TD’s Q Global Dividend ETF is the only global dividend ETF on our list. The ETF’s portfolio managers use a quantitative approach to pick investments, and the ETF can invest in global stocks, preferred shares, and REITs.

TQGD has a very short performance track record and is a tiny ETF in terms of assets under management. Its current asset size does put it at risk of closing in the future if it isn’t able to grow its assets. 

The ETF’s MER is relatively high compared to other dividends ETFs on our list but is priced very well, considering that it follows a global strategy.

TQGD pays out distributions to investors on a monthly basis and offers a great dividend yield. 

The fund has roughly 200 underlying stock holdings, which makes it very well diversified. 

Due to its global mandate, TQGD does not really have any country-specific sector bias. The ETFs’ top sectors include information technology, financials, and healthcare.

TD assigns a low to medium risk rating to the ETF, which is likely an understatement of TQGD’s risk. The ETF should likely be considered medium risk.

Although it has few assets and a very short track record, TQGD pays a great yield, is the only global dividend ETF on our list, and has a quantitative approach to investing.

11. RBC Quant Canadian Dividend Leaders ETF

RBC’s RCD ETF is another Canadian dividend stock strategy available on the ETF shelf in Canada. The ETF’s portfolio managers use a quantitative approach to pick equities and look at a stock’s balance sheet strength, dividend payout, and ability to pay or grow dividends in the future.

RCD has a medium-length performance track record and is also decently sized in terms of assets under management. The ETF’s MER is slightly higher compared to other Canadian dividends ETFs on our list. 

RCD pays out distributions to investors on a monthly basis and offers an excellent dividend yield. With approximately 75 stock holdings, it is a fairly well-diversified strategy.

Once again, the ETF’s sector biases reflect some of the Canadian market’s top sectors. RCD’s top sectors include financials, energy, and industrials.

RBC assigns a medium risk rating to the ETF, which is in line with most other dividend-focused equity strategies.

With good overall features and an excellent dividend yield, RCD is a great ETF to consider as a Canadian dividend-focused stock ETF.

Frequently Asked Questions

What are the best options for U.S. dividend ETFs available in Canada?

Some good options to consider include the Vanguard U.S. Dividend Appreciation Index ETF (VGG), and the iShares U.S. High Dividend Equity Index ETF (XHU). These ETFs track U.S. companies with solid dividend track records.

Which Canadian dividend Aristocrats ETFs are popular among investors?

A popular ETF in this category is the iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (CDZ). This ETF provides exposure to a diversified group of Canadian companies with long-term dividend growth.

What are the top-performing international dividend ETFs for Canadians?

A popular international dividend ETF choice for Canadians is the Vanguard FTSE All-World ex Canada High Dividend Yield Index ETF (VI). This ETFs offer exposure to global equity markets with a focus on dividend-paying companies.

How to Buy the Best Dividend ETFs in Canada

The cheapest way to buy ETFs is from discount brokers. My top choices in Canada are:

To learn more, check out my full breakdown of the best trading platforms in Canada.

Conclusion

We have covered some of the best dividend strategies available on the Canadian ETF shelf above. 

Although dividend strategies in your portfolio can be a great source of passive income, there are other ways to generate constant cash flows.

Unsure if dividend ETFs are right for you? Here’s a complete list of the best ETFs in Canada.

Also check out our picks for the top Canadian dividend stocks.