Is it Time to Ditch BCE Stock for This Incredible Dividend Play?

This Vanguard dividend ETF pays monthly and is unlikely to cut its payout, unlike BCE.

Key Points
  • BCE’s dividend cut highlights the risk of relying on a single company for income.
  • VDY spreads risk across Canada’s top dividend payers while delivering steady monthly payouts and dividend growth.
  • With low fees and strong tax efficiency, it’s a better long-term dividend play for most investors.

Earlier this year, BCE (TSX: BCE) slashed its dividend in half. I don’t know about you, but I prefer my dividend investments to not pay me less just because management can’t run the business properly.

Every company has issues, which is why I prefer to diversify through an exchange-traded fund (ETF). For Canadian dividend exposure, few options are better than Vanguard FTSE Canadian High Dividend Yield Index ETF (TSX: VDY). Here’s why it’s at the top of my list.

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What is VDY?

VDY tracks the FTSE Canada High Dividend Yield Index. This benchmark screens the entire Canadian market—large-, mid-, and small-cap stocks—and selects the top half of companies based on dividend yield.

From there, it market-cap weights the portfolio, which means it ends up heavily concentrated in bigger financials and energy stocks, Canada’s two dominant dividend-paying sectors.

The ETF offers a trailing 12-month yield of 3.67%, pays dividends monthly, and charges a low 0.22% management expense ratio (MER). With its emphasis on dividend payers, VDY also tilts toward value stocks.

Why I like VDY

From inception through 2024, VDY’s dividend payouts have grown at an annualized rate of 9.09%, well ahead of Canada’s long-term inflation average of about 2%.

That means investors not only collect steady income, but they also see their payouts grow in real terms over time. Moreover, VDY is also one of the more tax-efficient dividend ETFs, particularly in taxable accounts.

In 2024, for example, VDY distributed $2.451 per share, of which the vast majority ($2.15701) was eligible dividends. A smaller portion ($0.29367) came as capital gains, which also benefit from preferential tax treatment, while a negligible $0.00071 was the return of capital.

On top of that, VDY’s performance has been impressive. With dividends reinvested, it has delivered a 12.36% annualized return over the last 10 years—actually beating the S&P/TSX 60.

That’s no small feat, as most dividend ETFs tend to lag their benchmarks due to sector tilts or higher fees. VDY’s ability to outperform while still prioritizing yield shows why it’s earned a spot as a core Canadian dividend holding.

The Foolish takeaway

You don’t need to get fancy by picking dividend stocks or paying up for expensive active funds. Vanguard already offers a lineup of low-cost index ETFs that consistently deliver, and VDY is the one that caters directly to dividend investors. It checks all the boxes—low fees, strong yield, dividend growth, tax efficiency, and even benchmark-beating performance.

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.

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