There are plenty of dividend ETFs on the TSX, but this one is my favourite. It offers a solid 4% yield, is highly tax efficient thanks to its focus on eligible Canadian dividends, charges low fees, pays monthly, and unlike many of its competitors, has actually outperformed the S&P/TSX 60 over time.
That’s the whole case, right there. But if you keep reading, I’ll break down each of these points in more detail and explain why I believe the Vanguard FTSE Canadian High Dividend Yield Index ETF (TSX:VDY) is one of the best long-term dividend ETFs in Canada.
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What is VDY?
VDY tracks the FTSE Canada High Dividend Yield Index, a rules-based index that selects Canadian companies with above-average dividend yields. This is a passive ETF, but it’s far more concentrated than your typical broad-market fund.
VDY holds only about 50 stocks, with a heavy tilt toward financials and energy, two sectors that dominate the Canadian market and are known for paying consistent, high dividends.
The index’s focus on yield gives the fund a natural value tilt, but many of the companies in the portfolio also score well on quality metrics. On average, the portfolio trades at a 14.3 times price-to-earnings ratio, has a return on equity of 11.9%, and an earnings growth rate of 7.6%. There’s solid, fundamental strength supporting each dividend.
VDY also stands out for its low cost. The management expense ratio is just 0.22%, which means you’ll pay only $22 annually on every $10,000 invested. That’s less than what most people spend on a single pizza night.
VDY yield and performance
VDY currently yields around 4% with a recent monthly distribution of $0.1474 per share. That figure reflects the 12-month trailing yield. If you had held the ETF over the past year, this is approximately what you would have received in cash payouts, on average.
It’s also incredibly tax-efficient. In most years, the entire dividend is considered a qualified Canadian dividend, which gets preferential tax treatment in non-registered accounts.
In some years, there may also be small amounts of capital gains or return of capital, both of which are also tax-efficient. Capital gains are taxed at half the rate of regular income and return of capital reduces your cost base, which can defer taxes into the future.
And if you’re holding VDY inside a Tax-Free Savings Account (TFSA) and reinvesting your dividends, those tax advantages become even more powerful. Over the past 10 years, VDY has compounded at a 10.2% annualized total return, beating the broader S&P/TSX 60 Index, which did 981% annualized.
For investors looking for dependable monthly income, tax-efficient cash flow, and long-term compounding, VDY continues to deliver. It’s the kind of ETF that doesn’t just pay you now. It builds wealth quietly, month after month.
