If you are an average Canadian Investor, we understand how you feel looking at the volatility of the stock market. The start of 2021 saw the stock market rising and plunging in equal measure which made investing in equities uncertain and investors nervous.
So, are you one of those people who think that you should not invest at all and let the money be in your savings or fixed deposit account? Well, there are alternatives available that can help eliminate the risk factor to a large extent and still help you earn decent returns.
The instrument in contention today is ETFs or exchange-traded funds. Many people may have come across exchange-traded funds such as XDV and VDY but never cared to explore them further. But we think it is time that you should start paying attention.
This article discusses the top five Canadian ETFs in 2021 that pay a monthly dividend.
What are dividend-paying ETFs?
ETFs or exchange-traded funds are financial instruments traded on stock exchanges that invest in a group of stocks. Dividend ETFs, such as the XDV, are funds that invest in a plethora of high dividend-paying stocks. It entails the subscribers a periodic return on their investments.
Such ETFs invest in companies with a proven history of dividend payouts supported by stable cash flows, and predictable earnings that span across various sectors. Most risk-averse individuals seeking higher returns than fixed deposits and savings accounts prefer investing in dividend ETFs. Given their ability to hedge risk, many investors also use them to manage their portfolio’s risk quotient.
Reasons for Choosing ETFs Paying Monthly Dividends
Here is why you should consider investing in monthly dividend-paying ETFs:
- These offer monthly payouts, making them a good option for investors looking for monthly returns
- They track a particular index and are passively managed
- The investors get the benefit of diversification
- These are excellent for long-term investors looking for regular returns
- They offer tax benefits to the subscribers if invested in a TFSA
Top Five Canadian Monthly Dividend-paying ETFs
Of late, Canada has been a fertile ground for ETFs. The investors in the country have had a hard time figuring out the most suitable exchange-traded funds. So we have curated a list of the top five Canadian ETFs that pay a monthly dividend to their subscribers –
| ETF | AUM | Yield | MER |
| XDV | $156.37M | 4.09% | 0.55% |
| ZDV | $621.21M | 4.17% | 0.35% |
| HAL | $85.14M | 3.25% | 0.55% |
| XEI | $986.8M | 4.41% | 0.20% |
| VDY | $916.86M | 4.16% | 0.20% |
XDV (iShares Canadian Select Dividend Index ETF)
Ticker: TSX: XDV
Top 10 holdings (55.60% of total assets)
- Canadian Imperial Bank of Commerce
- Canadian Tire Corp Ltd
- Bank of Montreal
- Royal Bank of Canada
- Labrador Iron Ore Royalty Corp
- TC Energy Corp
- Bank of Nova Scotia
- BCE Inc
- The Toronto-Dominion Bank
- National Bank of Canada
The iShares Canadian Select Dividend Index (XDV) is an ETF looking to emulate the performance of the Dow Jones Canada Select Dividend Index to the closest extent possible. BlackRock Asset Management Canada Ltd. manages it and seeks to provide long-term capital appreciation to the subscribers. Its majority of the assets lie in its top 10 holdings and the finance sector.
ZDV (BMO Canadian Dividend ETF)
Ticker: TSX: ZDV
Top 10 holdings (45.30% of total assets)
- Bank of Nova Scotia
- The Toronto-Dominion Bank
- Royal Bank of Canada
- Enbridge Inc
- Canadian Bank of Commerce
- BCE Inc
- Canadian National Railway Co
- Bank of Montreal
- TELUS Corp
- Nutrien Ltd
Issued by the Bank of Montreal, the BMO Canadian Dividend ETF is a yield-weighted portfolio of dividend-paying Canadian stocks. It tries to replicate the performance of the Dow Jones Canada Select Dividend Index and comprises the top 30 stocks selected by Dow Jones. It uses a rules-based methodology, and the manager rebalances it every June and December.
HAL (Horizons Active Canadian Dividend ETF)
Ticker: TSX: HAL
Top 10 holdings (34.88% of total assets)
- Royal Bank of Canada
- The Toronto-Dominion Bank
- Constellation Software Inc
- Bank of Nova Scotia
- Open Text Corp
- WSP Global Inc
- TELUS Corp
- Brookfield Infrastructure Partners LP
- Parkland Corp
- TMX Group Ltd
The Horizons Active Canadian Dividend ETF is an excellent option for those seeking monthly dividend returns from their investments. The primary focus of the fund is to target companies with long-term growth opportunities. It invests in major companies in North America and offers an excellent chance of building capital.
XEI (iShares Core S&P/TSX Composite High Dividend ETF)
Ticker: TSX: XEI
Top 10 holdings (48.32% of total assets)
- The Toronto-Dominion Bank
- Enbridge Inc
- Royal Bank of Canada
- BCE Inc
- TC Energy Corp
- Bank of Nova Scotia
- Canadian Natural Resources Ltd
- Pembina Pipeline Corp
- Suncor Energy Inc
- Nutrien Ltd
The iShares Core S&P/TSX Composite High Dividend Index ETF is an instrument managed by BlackRock Asset Management Canada Ltd. It emulates the S&P/TSX Equity Income Index and follows optimum diversification that enables it to pay monthly dividends to its investors. The fund’s primary focus is to be a long-term foundational holding and minimizing the risk to the extent possible.
VDY (Vanguard FTSE Canadian High Dividend Yield Index ETF)
Ticker: TSX: VDY
Top 10 holdings (49% of total assets)
- Royal Bank of Canada
- The Toronto-Dominion Bank
- Bank of Nova Scotia
- Enbridge Inc
- Bank of Montreal
- TC Energy Corp
- Canadian Imperial Bank of Commerce
- Manulife Financial Corp
- BCE Inc
- Canadian Natural Resources Ltd
The Vanguard FTSE Canadian High Dividend Yield Index ETF is another excellent option for investors seeking regular returns from their investments. It aims to emulate the performance of the FTSE Canada High Yield Index and invests in a variety of high dividend-paying stocks across small, mid, and large-cap. It is a passively managed fund and follows a full-replicated index strategy for diversification across industries.
The Bullish takeaway
The ETF landscape is a flourishing one in the country. But the ones we have listed above are best suited for those looking for monthly dividends from their investments. These have a good yield ratio and are regular in paying money to their investors. Investing in ETFs is a great way to build your wealth and get periodic returns too.
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