3 High-Yield Canadian Dividend ETFs to Buy and Hold Forever

These funds provide a all-in-one portfolio of top Canadian dividend stocks.

| More on:
exchange traded funds

Image source: Getty Images

A great strategy for beginner investors is dividend investing. Selecting blue-chip, large-cap dividend-paying Canadian equities can be a good way to start investing. The TSX is full of Canadian dividend stocks that have paid and increased yields for decades.

Dividends play a strong role in long-term investment growth thanks to the power of compounding. Reinvesting dividend payments consistently can help maximize your portfolio’s total return. Best of all, Canadian qualified dividends are taxed favourably at a lower rate.

However, there are a few downsides to dividend stocks. Most dividend stocks pay quarterly, which is not optimal for investors seeking monthly income. Selecting and managing a portfolio of 10-30 dividend stocks can also be time consuming and expensive.

An alternative, passive approach to buy dividend-paying stocks is via an exchange-traded fund (ETF). These funds hold a portfolio of high-quality Canadian dividend stocks selected by professional fund managers according to preset rules. Let’s look at my top picks today.

iShares S&P/TSX Composite High Dividend Index ETF

iShares S&P/TSX Composite High Dividend Index ETF (TSX:XEI) holds a portfolio of 76 large-cap Canadian stocks screened for above-average dividend yields. Most of XEI is in energy (32%) and financial (30%) stocks, with some utilities and telecoms.

A great feature of XEI is its monthly payment schedule, even though its underlying companies mostly payout on a quarterly basis. Currently, XEI has a trailing 12-month yield of 4.15%. This is the yield you would have received if you’d held XEI over the last year.

XEI costs a management expense ratio of 0.22%. This is the annual percentage fee deducted from your investment on a daily basis. For a $10,000 investment, a MER of 0.22% will cost you around $22 in annual fees. This can easily be cheaper than trading commissions for purchasing individual stocks.

BMO Canadian Dividend ETF

BMO Canadian Dividend ETF (TSX:ZDV) uses a rules-based screener to pick Canadian stocks based on their three-year dividend-growth rate, yield, payout ratio, and liquidity. The goal is to hold a portfolio of Canadian stocks with above-average dividend yields, while ensuring good quality and lower volatility.

ZDV currently pays an annualized distribution yield of 4.31%. This is the yield an investor may receive moving forward if the size of the ETFs most recent dividend remains consistent versus its current share price. Like XEI, ZDV also pays out its dividends monthly.

In terms of fees, ZDV is more expensive than XEI with a MER of 0.39%. For a $10,000 investment, a MER of 0.39% will cost you around $39 in annual fees. The higher fees are a result of ZDV’s active management approach, as it does not track an index.

Vanguard FTSE Canadian High Dividend Yield Index ETF

Finally, investors who like Vanguard’s philosophy of low fees can buy Vanguard FTSE Canadian High Dividend Yield Index ETF (TSX:VDY). The ETF is very similar to XEI in terms of strategy but is much more concentrated, with just 39 stocks held and 58% of them hailing from the financial sector.

Investors looking for greater exposure to Canadian banks and insurance companies might prefer VDY over XEI. It’s trailing 12-month yield is slightly lower at 3.99%, but keep in mind that this can be affected by share prices — as share price drops, yields soar, and vice-versa.

VDY charges a 0.22% MER — the same as XEI. Personally, I would buy equal amounts of each, re-balancing annually to receive the average of their performance. Then I would augment this core dividend ETF portfolio with a few select Canadian stock picks (and the Fool has some great recommendations).

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Various Canadian dollars in gray pants pocket
Dividend Stocks

2 Cheap Dividend Stocks to Boost Your Passive Income

Bank of Nova Scotia and TC Energy pay attractive dividends that should continue to grow.

Read more »

Hands holding trophy cup on sky background
Dividend Stocks

3 Dividend Yield Champions to Buy Today

Manulife Financial (TSX:MFC) and two other Dividend Yield Champions look ripe for buying this fall and winter.

Read more »

A golden egg in a nest
Dividend Stocks

RRSP Investors: 2 Dividend Stocks to Build Your Retirement Nest Egg

These industry-leading stocks can be an excellent part of your portfolio to align with your retirement plan for a sizeable…

Read more »

edit Balloon shaped as a heart
Dividend Stocks

If You Like Dividends, You Should Love These 3 Stocks

Canadian investors can consider buying high dividend TSX stocks such as Enbridge to create a passive-income stream for life.

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

Pensioners: 3 Cheap TSX Dividend Stocks to Buy Today for TFSA Passive Income

When dividend stocks are cheap, it is time for long-term investors to scoop up shares in their TFSAs and enjoy…

Read more »

Retirement plan
Dividend Stocks

TFSA: How to Invest for $250 in Monthly Retirement

Investors looking to establish monthly retirement income will want to invest in these two stellar stocks now.

Read more »

Dividend Stocks

Buy 92 Shares in This Stock for $1,699 in Passive Income in 2024

The market is changing, and that could mean big things for this discretionary stock as we enter the new year.

Read more »

TFSA and coins
Dividend Stocks

TFSA Investors: How to Prepare for Investing in 2024

2024 will be here before you know it, so make sure you're prepared with a TFSA, have the funds for…

Read more »