Exchange-traded funds (ETFs) have emerged as a popular investment tool among both institutional and individual investors. These funds provide a cost-efficient method for gaining exposure to a diversified portfolio of stocks, bonds, and other assets. Unlike mutual funds, ETFs trade on an exchange like a stock, allowing investors to buy and sell easily throughout the trading day.
Investors have the luxury of selecting from a range of ETFs that offer different investment strategies and exposures. Some track leading market indices like the NASDAQ and the S&P 500, while others concentrate on specific themes or sectors such as clean energy and emerging markets. In addition, there are ETFs that focus on generating income for investors, with high dividend yields being a potential source of steady income.
In Canada and the United States, numerous ETFs provide investors with access to their respective stock markets. These ETFs offer diverse investment strategies and exposures, including broad market indices, sector-specific ETFs, and income-generating ETFs. Selecting the right ETF can be challenging, given the broad range of options. However, understanding an ETF’s fundamental characteristics such as its performance, dividend yield, and growth potential can help investors make well-informed investment decisions.
Why Dividend ETFs?
Dividend ETFs are a type of exchange-traded fund that focuses on investing in stocks of companies that pay dividends to their shareholders. Here are a few reasons why investors might choose to invest in dividend ETFs:
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Steady income: Dividend ETFs can provide investors with a steady stream of income from the dividends paid by the underlying companies.
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Potential for long-term growth: Companies that pay dividends tend to be mature, stable companies with a history of consistent earnings and cash flow. These companies may be less volatile than growth-oriented companies, which can provide investors with the potential for long-term growth.
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Diversification: Dividend ETFs can provide investors with exposure to a diversified portfolio of dividend-paying stocks, which can help spread out risk across multiple companies and sectors.
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Lower costs: Dividend ETFs typically have lower fees than actively managed mutual funds, which can help investors keep more of their investment returns.
Overall, dividend ETFs can be a good choice for investors who are looking for a steady stream of income, potential long-term growth, diversification, and lower costs. However, investors should carefully consider their investment goals and risk tolerance before investing in any ETF or other investment product.
Top 10 Dividend ETFs In Canada List
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iShares S&P/TSX 60 ETF (XIU) – 2.93% dividend yield, 5-year average annual growth of 4.21%. This ETF tracks the S&P/TSX 60 Index, which is made up of the 60 largest companies on the Toronto Stock Exchange by market capitalization.
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BMO S&P/TSX Capped Composite ETF (ZCN) – 2.98% dividend yield, 5-year average annual growth of 4.48%. This ETF tracks the S&P/TSX Composite Index, which is made up of the largest companies on the Toronto Stock Exchange by market capitalization.
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Vanguard FTSE Canada All Cap Index ETF (VCN) – 2.83% dividend yield, 5-year average annual growth of 6.14%. This ETF tracks the FTSE Canada All Cap Index, which includes Canadian companies of all sizes.
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iShares Core S&P/TSX Capped Composite ETF (XIC) – 2.92% dividend yield, 5-year average annual growth of 4.40%. This ETF tracks the S&P/TSX Composite Index and provides exposure to the Canadian equity market.
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BMO Canadian Dividend ETF (ZDV) – 4.47% dividend yield, 5-year average annual growth of 3.57%. This ETF invests in Canadian companies with a history of stable or increasing dividends.
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iShares Canadian Select Dividend Index ETF (XDV) – 4.63% dividend yield, 5-year average annual growth of 2.27%. This ETF invests in Canadian companies with a history of consistently paying dividends.
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Horizons S&P/TSX 60 ETF (HXT) – 1.52% dividend yield, 5-year average annual growth of 5.69%. This ETF tracks the S&P/TSX 60 Index and uses a total return swap structure to minimize tracking errors.
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iShares S&P/TSX Canadian Dividend Aristocrats ETF (CDZ) – 4.26% dividend yield, 5-year average annual growth of 4.25%. This ETF invests in Canadian companies with a history of increasing dividends for at least 5 consecutive years.
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BMO Canadian High Dividend Covered Call ETF (ZWC) – 8.00% dividend yield, 5-year average annual growth of 5.45%. This ETF invests in Canadian companies with a history of high dividend yields and uses covered call options to generate additional income.
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iShares Canadian Financial Monthly Income ETF (FIE) – 6.94% dividend yield, 5-year average annual growth of 0.76%. This ETF invests in Canadian financial sector companies with a focus on generating monthly income.
Top 10 Dividend ETFs In Canada Explained
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iShares S&P/TSX 60 ETF (XIU) – This ETF tracks the S&P/TSX 60 Index, which is composed of 60 of the largest and most liquid Canadian companies by market capitalization. The ETF’s 2.93% dividend yield and 5-year average annual growth rate of 4.21% make it a popular choice for investors seeking broad exposure to the Canadian equity market.
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BMO S&P/TSX Capped Composite ETF (ZCN) – This ETF tracks the S&P/TSX Composite Index, which includes all of the companies listed on the Toronto Stock Exchange. With a dividend yield of 2.98% and a 5-year average annual growth rate of 4.48%, this ETF provides investors with exposure to the Canadian equity market across a wide range of industries and sectors.
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Vanguard FTSE Canada All Cap Index ETF (VCN) – This ETF tracks the FTSE Canada All Cap Index, which includes Canadian companies of all sizes. With a dividend yield of 2.83% and a 5-year average annual growth rate of 6.14%, this ETF provides investors with broad exposure to the Canadian equity market across large, mid, and small-cap stocks.
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iShares Core S&P/TSX Capped Composite ETF (XIC) – This ETF also tracks the S&P/TSX Composite Index and provides investors with exposure to the Canadian equity market. With a dividend yield of 2.92% and a 5-year average annual growth rate of 4.40%, this ETF is similar to ZCN in terms of its holdings and strategy.
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BMO Canadian Dividend ETF (ZDV) – This ETF invests in Canadian companies with a history of stable or increasing dividends. With a dividend yield of 4.47% and a 5-year average annual growth rate of 3.57%, this ETF may appeal to income-focused investors seeking exposure to high-quality Canadian companies with a strong dividend track record.
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iShares Canadian Select Dividend Index ETF (XDV) – This ETF invests in Canadian companies with a history of consistently paying dividends. With a dividend yield of 4.63% and a 5-year average annual growth rate of 2.27%, this ETF may appeal to investors seeking exposure to high-quality Canadian companies that have a history of consistently returning value to shareholders.
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Horizons S&P/TSX 60 ETF (HXT) – This ETF also tracks the S&P/TSX 60 Index, but uses a total return swap structure to minimize tracking error. With a relatively low dividend yield of 1.52% but a 5-year average annual growth rate of 5.69%, this ETF may appeal to investors seeking a more tax-efficient way to invest in Canadian equities.
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iShares S&P/TSX Canadian Dividend Aristocrats ETF (CDZ) – This ETF invests in Canadian companies with a history of increasing dividends for at least 5 consecutive years. With a dividend yield of 4.26% and a 5-year average annual growth rate of 4.25%, this ETF may appeal to investors seeking exposure to high-quality Canadian companies with a strong history of increasing dividends.
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BMO Canadian High Dividend Covered Call ETF (ZWC) – This ETF invests in Canadian companies with a history of high dividend yields and uses covered call options to generate additional income. With a high dividend yield of 8.00% and a 5-year average annual growth rate of 5.45%, this ETF may appeal to income-focused investors seeking a potentially higher income stream.
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iShares Canadian Financial Monthly Income ETF (FIE) – This ETF invests in Canadian financial companies and seeks to provide a monthly income stream. With a dividend yield of 7.50% and a 5-year average annual growth rate of -1.12%, this ETF may appeal to investors seeking exposure to the Canadian financial sector and a potentially steady income stream.
Final Words
In summary, ETFs have become a popular investment option due to their ease of access, cost-effectiveness, and diverse range of investment strategies and exposures. Whether an investor is seeking broad market exposure, sector-specific ETFs, or income-generating ETFs, there are numerous options available in the Canadian and US markets.
However, it’s crucial to consider an ETF’s performance, dividend yield, and growth potential before investing, as this can impact an investor’s returns over the long term. With the right research and understanding, investors can build a well-diversified portfolio using ETFs to achieve their investment goals.