Any Canadian investors with money that they don’t need for a long time can consider putting some in Canadian dividend exchange-traded funds (ETFs). ETFs provide immediate diversification compared with buying securities individually.
ETFs also make it easy to build positions. For example, in a market downturn, you can buy more units of ETFs, which is much less work than adding to multiple positions for a portfolio made up of individual stocks.
By using trading platforms like Wealthsimple and National Bank of Canada that charge no commission fees, you can easily build positions by dollar cost averaging. Essentially, ETFs are relatively low maintenance for investors.
Here are a few dividend ETFs you can explore for making nice income.
Image source: Getty Images
Canadian high-dividend yield ETF
As the name implies, Vanguard FTSE Canadian High Dividend Yield Index ETF (TSX:VDY), aims to track the performance of the FTSE Canada High Dividend Yield Index before fees and expenses. Because the ETF employs a passive investing strategy, its management expense ratio (MER) is relatively low at 0.22%. It pays a monthly cash distribution that recently yielded 4.35%.
The ETF is popular with net assets of about $2 billion. Notably, its top 10 holdings make up roughly 71% of the ETF. They include the Big Five Canadian bank stocks that make up about 43% of the ETF. Its other top holdings include two large energy infrastructure stocks, BCE, Suncor, and Canadian Natural Resources.
The recent dip of about 8% from the $44 to the $40 level is a good place to consider buying some units for a higher yield.
Another Canadian high-yield ETF to consider
To get a similar yield, you can also consider iShares Canadian Select Dividend Index ETF (TSX:XDV). The ETF is made available by BlackRock. On BlackRock’s website, it explains that the ETF “seeks to provide long-term capital growth by replicating the performance of the Dow Jones Canada Select Dividend Index, net of expenses.” In other words, it provides exposure to the 30 highest-yielding Canadian stocks in the Dow Jones Canada Total Market Index.
The XDV ETF pays a monthly cash distribution that recently yielded 4.34%. The ETF is also popular with net assets of about $1.7 billion. Seeing that the underlying strategy provides potential value from seeking high yielders that could have an undervalued component, this ETF is more expensive than the previous one with a MER of 0.55%
Its top 10 holdings make up about 54% of the ETF, which consist of the Big Six Canadian bank stocks, BCE, Canadian Tire, iA Financial, and Labrador Iron Ore Royalty.
Highest-yielding ETF
Finally, I’ll last introduce iShares S&P/TSX Composite High Dividend Index ETF (TSX:XEI), which provides the highest yield of the three ETFs discussed. Its recent yield was 4.86%. BlackRock describes it as a low-cost monthly dividend ETF that’s designed to be a long-term foundational holding. Specifically, the ETF “seeks long-term capital growth by replicating the performance of the S&P/TSX Composite High Dividend Index, net of expenses.”
The XEI ETF has net assets of about $1.4 billion. Its MER of 0.22% is the same as the first ETF. Its top 10 holdings make up about 49% of the ETF. They include three big Canadian bank stocks, two large energy infrastructure stocks, two big telecom stocks, Barrick Gold, CNQ, and Suncor.
Investor takeaway
Canadian dividend ETFs are a great way to build wealth securely for long-term investing, especially if you aim to invest more money on market dips, such as the one we’re experiencing now.
