Dividend ETFs are extremely popular in Canada, with billions of dollars invested in them. But with dozens of choices, which are actually the best ones, and are they even worth it?
Today, I’m ranking the top 5 Canadian dividend ETFs, counting down from the weaker ones all the way to my #1 pick. And at the end, I’ll explain why I don’t really love the dividend ETF selection overall in Canada—and what I prefer instead.
#5 – iShares Canadian Select Dividend Index ETF (XDV)
When researching ETFs, you can simply search the ETF name and go straight to the company’s website. They’ll have all the details you need.
But personally, I prefer using the Fund Facts document—it’s a more condensed and easier-to-read version of the key information. You’ll find important details like MER, dividend yield, top holdings, and past performance all in one place, so let’s dive into it here:
(Jan 31, 2025)
The iShares Canadian Select Dividend Index ETF (XDV) is designed for investors looking for steady, high-quality dividends from some of Canada’s strongest companies. It tracks the Dow Jones Canada Select Dividend Index, selecting stocks based on dividend yield, payout ratio, and dividend growth.
Key Features
✅ Strong Dividend Payers – XDV holds 31 of the highest-yielding Canadian stocks, carefully selected for dividend consistency.
✅ Monthly Distributions – Investors receive dividend income every month, making it ideal for income-focused investors.
✅ Financials-Heavy – Nearly 60% of the ETF is made up of Canada’s largest banks and financial companies.
Performance & Costs
💰 Dividend Yield: 4.22% (as of Jan 2025)
📈 Annual Performance (2024): 21.31% return
💸 MER (Fees): 0.55% – a bit higher than some alternatives but reasonable for a high-yield strategy.
📊 Assets Under Management (AUM): $1.76 billion
Top Holdings
The fund is dominated by Canadian financials, making up nearly 60% of the portfolio. Its top holdings include:
🏦 Canadian Tire (8.97%)
🏦 Royal Bank of Canada (8.17%)
🏦 Bank of Montreal (7.81%)
🏦 CIBC (5.73%)
🏦 National Bank of Canada (5.64%)
These companies have strong balance sheets and a history of consistent dividend growth.
Who Should Invest?
✅ Great for retirees & income investors looking for monthly payouts.
✅ Ideal for those wanting exposure to Canada’s most stable dividend stocks.
⚠️ Not ideal for growth investors – this fund focuses on income over capital appreciation.
XDV is a solid pick for dividend investors who want monthly income and exposure to Canada’s most stable, high-yield companies. However, keep in mind its heavy reliance on financial stocks and moderate fees. If you’re looking for stability and cash flow, XDV is worth considering.
#4 – BMO Canadian High Dividend Covered Call ETF (ZWC)
Jan 21, 2025
The BMO Canadian High Dividend Covered Call Fund (ZWC) is an income-focused ETF that invests in high-dividend Canadian stocks while using a covered call strategy to enhance income. This means higher monthly dividends, but with limited upside potential in stock price growth.
How covered calls work:
ZWC sells call options on some of its stocks, earning extra income (premiums) in exchange for capping potential gains.
🔹 If stock prices stay flat or fall → ZWC keeps the premium as profit, boosting its dividend yield.
🔹 If stock prices rise above the strike price → ZWC must sell at the set price, missing out on bigger gains.
Bottom line: ZWC trades growth potential for more stable, high-yield income.
Key Features
✅ Enhanced Income Strategy – Uses covered calls to generate extra income, leading to a higher-than-average yield.
✅ Monthly Distributions – Ideal for retirees or income-focused investors.
✅ Diversified Canadian Portfolio – Holds 99 stocks, primarily in financials and energy.
Performance & Costs
💰 Dividend Yield: 6.62% as of Feb 27, 2025 – Higher-than-average due to the covered call strategy.
📈 Annual Performance (2024): 12.0% return.
💸 MER (Fees): 0.72% – higher than traditional dividend ETFs due to active options management. The Trading Expense Ratio (TER) is significant as well at 0.20%, for a total of 0.92%, making it the most expensive ETF on this list.
📊 Assets Under Management (AUM): $1.76 billion
Top Holdings
The ETF is heavily weighted toward financials and energy, with top holdings including:
🏦 Bank of Nova Scotia (5.6%)
🏦 CIBC (5.6%)
🏦 Enbridge (5.3%)
🏦 Manulife (5.1%)
🏦 RBC (5.1%)
🏦 TD Bank (4.7%)
These are stable, high-yield dividend payers, but the covered call strategy caps growth potential.
Who Should Invest?
✅ Best for retirees & income seekers who prioritize consistent cash flow.
✅ Good for RRSP and TFSA investors who don’t need long-term capital growth.
⚠️ Not ideal for growth-focused investors – covered calls limit potential gains.
ZWC is a strong choice for investors who want high monthly income with reduced market volatility. However, its covered call strategy limits upside potential, making it better suited for income-focused investors rather than long-term growth seekers. A TFSA could be a great place to hold this to shield the high dividends from taxes.
Speaking of the TFSA, if you’re serious about growing yours, check out my free guide on the 5 steps to building a $1 million TFSA. Link is here:
https://blueprintfinancial.ca/1-million-tfsa-blueprint-download
#3 – iShares S&P/TSX Canadian Dividend Aristocrats Index Fund (CDZ)
Jan 31, 2025
The iShares S&P/TSX Canadian Dividend Aristocrats ETF (CDZ) invests in Canadian companies that have increased their dividends every year for at least five consecutive years. It’s a solid choice for those seeking stable dividend growth and monthly income.
Key Features
✅ Dividend Growth Focus – Only includes stocks with a proven track record of raising dividends.
✅ Broad Diversification – Holds 91 stocks across multiple sectors.
✅ Monthly Distributions – Ideal for income-focused investors.
Performance & Costs
💰 Dividend Yield: 3.79%
📈 Annual Performance (2024): 20.07% return
💸 MER (Fees): 0.66% – slightly higher than some competitors
📊 Assets Under Management (AUM): $940.9 million
Top Holdings
CDZ is less concentrated in financials compared to other dividend ETFs, with top holdings including:
🏦 BCE Inc. (3.97%)
🏦 Allied Properties REIT (3.43%)
🏦 Fiera Capital (2.79%)
🏦 Telus (2.74%)
🏦 South Bow Corp (2.74%)
This diversification helps reduce risk compared to ETFs that are heavily weighted toward banks.
Who Should Invest?
✅ Great for dividend growth investors who want increasing payouts over time.
✅ More diversified than bank-heavy dividend ETFs.
⚠️ Not ideal for maximum yield seekers – some other ETFs offer higher upfront dividends.
CDZ is a great choice for long-term investors who value steady dividend growth and broad sector exposure. While its yield is lower than covered call ETFs, its focus on companies with strong dividend track records makes it a reliable option for sustainable income.
Pro tip: For all these ETFs, you can set up a dividend reinvestment plan (DRIP) which can really help supercharge long-term gains.
#2 – Vanguard FTSE Canadian High Dividend Yield Index ETF (VDY)
The Vanguard FTSE Canadian High Dividend Yield Index ETF (VDY) is designed for investors seeking high dividend income from Canada’s largest dividend-paying stocks. It tracks the FTSE Canada High Dividend Yield Index, making it a low-cost option for income-focused investors.
Key Features
✅ Low-Cost ETF – MER of 0.22%, keeping expenses low.
✅ High Dividend Yield – Focuses on established dividend payers.
✅ Monthly Distributions – Ideal for those looking for regular income.
Performance & Costs
💰 Dividend Yield: High, due to its focus on strong dividend payers.
📈 Annual Performance (2024): 8.4% return
💸 MER (Fees): 0.22% – lower than many dividend ETFs
📊 Assets Under Management (AUM): $2.49 billion
📈 Number of Holdings: 56 stocks
Top Holdings
VDY is heavily weighted in financials and energy, with top holdings including:
🏦 Royal Bank of Canada (13.9%)
🏦 TD Bank (10.8%)
🏦 Canadian Natural Resources (8.3%)
🏦 Enbridge (7.7%)
🏦 Bank of Montreal (6.6%)
These top 10 holdings make up 70.6% of the fund, making it highly concentrated in a few major sectors.
Who Should Invest?
✅ Great for dividend investors looking for strong, stable income.
✅ Best for those comfortable with financials and energy sector exposure.
⚠️ Not ideal for diversification seekers – over 85% is in financials and energy.
VDY is a strong, low-cost option for investors focused on high monthly dividend income. While it lacks sector diversification, its focus on Canada’s largest dividend payers makes it a great fit for income-seeking investors.
#1 – iShares Core MSCI Canadian Quality Dividend Index ETF (XDIV)
My top pick for the best Canadian dividend ETF is iShares Core MSCI Canadian Quality Dividend Index ETF (XDIV). I chose XDIV because it prioritizes high-quality dividend stocks with strong financials and a track record of steady or growing payouts, and it is the lowest cost ETF by far on this list.
Unlike other dividend ETFs that come with higher fees or concentrated sector risks, XDIV offers a low-cost, long-term solution for income-focused investors. If you’re looking for a reliable way to earn dividends without overpaying in fees, this is one of the best options in Canada. But here’s the thing—I still don’t love dividend ETFs overall, and I’ll explain why at the end.
Key Features
✅ Low-Cost ETF – One of the cheapest dividend ETFs with a 0.11% MER.
✅ Focus on Financial Strength – Selects stocks with strong balance sheets and stable earnings.
✅ Monthly Distributions – Provides regular income for investors.
Performance & Costs
💰 Dividend Yield: 4.53%
📈 Annual Performance (2024): 23.01% return
💸 MER (Fees): 0.11% – the lowest among major Canadian dividend ETFs
📊 Assets Under Management (AUM): $1.99 billion
📈 Number of Holdings: 20 stocks
Top Holdings
XDIV is heavily weighted toward financials and energy, with top holdings including:
🏦 Enbridge (9.49%)
🏦 TD Bank (9.49%)
🏦 RBC (9.24%)
🏦 Sun Life (8.92%)
🏦 Suncor Energy (8.85%)
These stocks offer high dividend yields and financial stability.
Who Should Invest?
✅ Great for cost-conscious investors seeking dividend income with low fees.
✅ Good for those who want a strong mix of financial and energy stocks.
⚠️ Not ideal for diversification seekers – concentrated in just 20 holdings.
XDIV is a top choice for investors who want a low-cost, high-quality dividend ETF. While it lacks sector diversity, its focus on financially strong companies and low fees makes it a compelling long-term investment.
Why I Don’t Love Dividend ETFs
I love ETFs in general, but when it comes to dividend ETFs in Canada, they have some downsides, especially when compared to building a dividend stock portfolio yourself.
1. Higher Fees That Eat Into Returns
Dividend ETFs often come with higher-than-average MERs (Management Expense Ratios), which can add up over time. For example:
- iShares XDV charges 0.55% MER but only holds 31 stocks—not great diversification for the cost.
- CDZ (Canadian Dividend Aristocrats ETF) has an MER of 0.66%. On a $100,000 portfolio, that’s $660 per year just in fees!
While that might not seem like much at first, it compounds over time, cutting into your long-term returns. To counteract this, try to find the lower MER dividend ETFs, like the top two on my list here.
2. Less Diversification Than You Think
Many Canadian dividend ETFs aren’t as diversified as they seem—they are often heavily concentrated in financials and energy.
- VDY has over 85% exposure to just financials and energy, making it vulnerable to sector downturns.
- XDV holds only 31 stocks and XDIV holds only 20 stocks, meaning you’re not getting broad market exposure.
Now, compare that to a true diversified ETF like Vanguard Growth ETF (VGRO), which holds over 13,000 stocks across multiple sectors and geographies. VGRO provides exposure to global equities, including technology, healthcare, industrials, and consumer sectors, areas that Canadian dividend ETFs often lack.
If you’re looking for true diversification, dividend ETFs may not cut it—you might be better off building your own portfolio or choosing a globally diversified ETF like VGRO.
3. U.S. Dividend Stocks Might Be a Better Option
Many of the best dividend stocks are in the U.S. market, offering:
- Higher dividend growth rates
- More sector diversification
- More blue-chip companies with global reach
Instead of paying ETF fees, you might be better off investing in 10–20 high-quality dividend stocks across Canada and the U.S.
Pro Tip: For U.S. dividend stocks, consider holding them in an RRSP and not a TFSA to avoid withholding taxes on the dividends.
While Dividend ETFs in Canada can be an appealing option for investors who prefer not to pick individual dividend stocks, they come with their own set of challenges, including high fees, limited diversification, and a lack of control.
If you’re looking for a more tailored approach to your investments, our financial planning services at Blueprint Financial can help you create a strategy that’s just right for your unique goals.
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