Looking for Market Defence? Canadian Dividend ETFs Are a One-Stop Solution

Canadian dividend ETFs are a good consideration for better diversification and defence.

Kay Ng

Author Bio

Kay graduated from the University of British Columbia with a Bachelor of Science in Computer Science and furthered her studies in financial markets, finance, and financial accounting. She began investing in dividend stocks in 2008, turning an early interest into a lasting passion. Over the years, Kay has refined her investment approach to focus on high-quality businesses, using fundamental analysis and valuation to identify long-term investment opportunities. Her investment research and articles have been featured in The Motley Fool, Sure Dividend, and Seeking Alpha. Outside of investing, Kay enjoys playing the piano, from popular songs learned by ear to challenging classical compositions. Her favourites include Fantaisie-Impromptu by Frédéric Chopin and La Campanella by Franz Liszt.

Education

Bachelor of Science (BSc) in Computer Science, University of British Columbia Further studies in financial markets, finance, and financial accounting

Areas of Expertise

Dividend stocks, fundamental analysis, company valuation, quality investing, long-term investing, business fundamentals, and identifying investment opportunities in high-quality companies.

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Favorite Investment Quotes

“The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.” — Benjamin Graham “A market downturn doesn’t bother us. It is an opportunity to increase our ownership of great companies with great management at good prices.” — Warren Buffett

Published February 6, 2025 10:30 am EST

In times of market turbulence, finding a reliable defence strategy for your portfolio becomes essential. With volatility looming, whether it’s from geopolitical issues or other reasons, investors are increasingly looking for stability. The stock market has historically trended upward, but the path is bumpy.

So, how can Canadian investors protect their wealth during uncertain times? One proven solution lies in dividend-paying investments, particularly dividend exchange-traded funds (ETFs). These funds not only offer a steady income stream but also allow for diversification, mitigating risk in the face of market volatility.

ETF chart stocks — Image source: Getty Images

Why dividend ETFs? The power of passive income

While dividend stocks can be an excellent source of income, selecting individual stocks requires significant research and risk management. A better option might be dividend ETFs, which pool together a basket of high-yield stocks, providing investors with a diversified portfolio. This means less risk, greater exposure to various sectors, and a smoother ride through market ups and downs.

Here are two Canadian dividend ETFs that are compelling choices for investors seeking defence against market volatility while still aiming for growth.

iShares S&P/TSX Composite High Dividend Index ETF

With net assets totalling $1.7 billion, iShares S&P/TSX Composite High Dividend Index ETF (TSX: XEI) targets a reliable income stream by tracking the S&P/TSX Composite High Dividend Index. Its top holdings include familiar names such as the major Canadian banks — Toronto-Dominion Bank, Royal Bank of Canada, and Bank of Montreal — along with leading energy companies like Enbridge and Suncor Energy.

The XEI ETF has a low management expense ratio (MER) of 0.22% and a recent yield of 4.9%, which is significantly higher than the best GIC rate of around 3.7% currently. This yield reflects the potential for higher returns, albeit with more risk. It’s an ideal long-term investment for those seeking consistent dividends and exposure to the financial and energy sectors, which are key sectors in Canada.

BMO Canada Dividend ETF

Another solid dividend ETF is BMO Canada Dividend ETF (TSX: ZDV), with a net asset value of around $1.1 billion. This ETF focuses on a yield-weighted portfolio of Canadian dividend stocks, with approximately 39% of its holdings in the financial services sector and 19.5% in energy. It also includes exposure to industrial services, telecommunications, and basic materials. Its top 10 holdings feature prominent banks and energy companies, which together make up a substantial portion of the fund.

With a manageable MER of 0.40% and a yield of 3.4%, ZDV provides decent income as well as growth potential. For investors looking to add a diversified income stream to their portfolios without overexposing themselves to individual stock risk, the BMO ETF is another good consideration for long-term growth and protection against market downturns.

The Foolish investor takeaway: Building a defensive portfolio with dividend ETFs

In a time of economic uncertainty and market swings, Canadian dividend ETFs like XEI and ZDV may offer better defence for investors. By investing in a basket of dividend-paying stocks, these ETFs provide both income and diversification, mitigating risk while still positioning your portfolio for potential growth.