Top Canadian Dividend Stocks for Investors Looking for Steady Passive Income

These two ETFs provide pre-made exposure to diversified portfolios of Canadian dividend stocks.

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The average Canadian dividend investor has a portfolio that looks like this: A few big banks, maybe some insurance companies, a pipeline or two, a telecom, and maybe even a few real estate investment trusts, or REITs.

Sound familiar? While there’s nothing wrong with this approach, it can result in a lack of diversification. The complexity can also result in too much time spent re-balancing the portfolio and reinvesting dividends.

Here’s another catch – many Canadian dividend stocks pay quarterly dividends. If you want cash landing more frequently in your account for passive income needs, this may not cut it. What’s the solution then?

An exchange-traded fund, or ETF, that holds a portfolio of Canadian dividend stocks according to certain rules. Today, I have two low-cost dividend ETF picks that may be suitable for your needs, with both paying out on a monthly basis.

iShares S&P/TSX Composite High Dividend Index ETF

The iShares S&P/TSX Composite High Dividend Index ETF (TSX:XEI) is a great option for Canadian investors trying to find the highest-yielding stocks trading on the TSX right now. Currently, this ETF has 75 holdings.

Some of the notable top dividend stocks held in this ETF include BCE, Telus, TC Energy, Toronto Dominion Bank, Enbridge, Royal Bank, Canadian Natural Resources, and Fortis, to name a few.

Unsurprisingly, XEI is largely concentrated in the financial and energy sectors at 29% and 28%, respectively. The next largest sector represented in this ETF is utilities and communications at around 18% and 11%, respectively.

Currently, XEI projects a distribution yield of 4.89%, which is the theoretical annual yield an investor would receive if the most recent monthly distribution stayed consistent moving forward. The ETF charges a 0.22% expense ratio.

iShares Canadian Select Dividend Index ETF

An alternative to XEI is the iShares Canadian Select Dividend Index ETF (TSX:XDV), which tracks the 30 highest-yielding Canadian companies represented in the broad Dow Jones Canada Total Market Index.

XDV also has some additional criteria to ensure quality in its holdings. This takes the form of a rules-based indexing methodology that screens potential holdings by dividend growth, yield, and payout ratio to avoid yield traps.

XDV’s top holdings are very similar to XEI, but also include some differences like Canadian Tire, National Bank, and Emera. The ETF has a lower distribution yield of 4.27% and a higher expense ratio of 0.55%.

The Foolish takeaway

If you’re looking to quickly invest in a portfolio of top Canadian dividend stocks with ease, then either XEI or XDV could meet your needs. Both ETFs charge relatively low fees, payout above-average yields on a monthly basis, and are transparent. They’re great picks for creating monthly passive income flows.

A great way to take either ETF to the next level is by adding dividend stocks or sectors that each ETF is underweight or deficient in (and the Fool has some great suggestions for those below!)

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 recommends Canadian Natural Resources, Emera, Enbridge, Fortis, and TELUS. The Motley Fool has a disclosure policy.

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