hey guys it's Adrian here the Canadian in a t-shirt and today I'll be
breaking down the best ETFs in Canada for dividends these are the Canadian
ETFs that pay a generous dividend that you could hold on to for life and collect
that easy passive income every month or every quarter plus they'll give you a
well diversified exposure to the Canadian market that makes them great
for any investor especially for beginners with a lot of room in their
TFSA I'm only going to be talking about ETFs in Canadian dollars that track
Canadian companies so no ETFs that track the US market like the S&P 500 all of my
US ETFs I hold in US Dollars and I keep them in my RRSP to avoid paying US
withholding taxes the ETFs that I'm talking about today give you purely
Canadian income so I keep them in my TFSA and once that's maxed out put them in
your RSP so that you won't be paying any taxes on the income that you earn I'll
be breaking down which types of investments I put in my TFSA vs. my RRSP
to minimize taxes in an upcoming video so stay tuned for that before I jump
into my list make sure you watch my previous videos in my dividend investing
guide I have a video on the basics of stock market investing and dividends my
top three dividend stocks in Canada and a video on ETFs so click the pop up at
the top right to check these out for this video I'm going to assume that you
know what an ETF is and what a management fee or MER is if you
don't then watch my ETF video first where I cover all the basics in a short
summary an ETF is a way to buy hundreds of stocks within a single fund so
instead of putting all your eggs in one basket by investing in one company you
are diversifying your portfolio by investing in a little piece of hundreds
of companies all at once and you collect profits through dividends from each of
these companies so without further ado let's jump into the best Canadian ETFs
for dividends let's start with XIC. XIC tracks
the TSX capped composit index and so it tracks the 235 largest Canadian
companies on the Toronto Stock Exchange unlike the other ETFs on this list XIC
is not specifically designed to target high dividend stocks it just
contains the 235 largest companies in Canada and the Canadian market is
dominated by the financial industry energy companies utilities
telecommunications and materials all of which pay a generous dividend by
collecting the dividends from these 235 company
XIC is able to pay out a dividend yield of 3% every quarter this is definitely
the lowest dividend yield on this list but XIC does have a few advantages it
has the lowest management fee and it has the widest diversification since XIC is
just tracking the canadian market it is purely passive management there are no
decisions to make in terms of the breakdown in this fund and so XIC can
get away with rock-bottom management fees with an MER of only 0.06%
that means that if you have $1000 invested in XIC
you'll only be paying 60 cents every year in fees that's practically nothing
remember with ETFs you'll never see this management fee taken out as a
transaction this fee is built into the price of the ETF that you're looking at
another way to consider the effect of the management fee is to subtract it
away from the dividend yield so if our dividend yield is 3% but we pay 0.06%
in management fees then our net income is 2.94%
every year of course this doesn't consider capital gains as the value of
the ETF grows this is just the cash that we obtain every single year through
dividends I can also calculate the amount you need to qualify for a DRIP
remember in my previous video I went over the benefits of DRIPs is that a
receiving that dividend in cash you can use a dividend to automatically purchase
a new share of that stock or ETF without paying any Commission this is incredibly
useful when you're investing in stocks but if you're using Questrade which is
my favourite online broker you don't pay any Commission on ETFs anyway and so
using a DRIP on ETFs won't save you any money but it does automate the
compounding growth of your ETF rather than having to manually purchase a new
share every time you receive a dividend if you're not using Questrade and you
do pay commissions on ETFs then definitely sign up for a DRIP it will
save you tons of money in the long run or better yet to sign up for Questrade
and never pay commissions on ETFs ever again check out my video on why Questrade
is my favorite online broker and for a step-by-step guide on how to buy
stocks and ETFs using Questrade and if you'd like to sign up use my referral
link in the box below to get $50 in Commission free trades plus I'll get a
small referral bonus so back to XIC with the yield of 3% you'll need to own
$3,615 in xic to qualify for a DRIP that
3% dividend gives you $108 a year or $27.11 every
quarter the share price for XIC is $27.10 and so your dividend
is enough to automatically purchase a new share of XIC so that covers the
dividend and the MER but we also want to consider the holdings of this ETF
this ETF contains the largest and most secure Canadian companies and so it
contains Canadian staples like RBC TD Enbridge Scotia Bank Canadian National
Railway BMO Suncor Energy and Shopify and those are just in the top ten there
are 235 companies in total in this ETF all of the companies
in the top ten except for Shopify pay out a generous
dividend that's why XIC is still a great ETF for dividends even
though that wasn't its intended goal let's also look at the industry exposure
of XIC. XIC just tracks the Canadian market and you can see that the
majority of the Canadian market is in financials energy materials and
industrials you'll notice that technology is very small only 5% of the
Canadian market in the US the largest companies are the tech companies like
Microsoft Apple and Amazon but in Canada there are only a few big players like
Shopify OpenText and Blackberry but there is a silver lining
tech companies almost never pay dividends whereas the heaviest Canadian
industries all paid generous dividends looking at the share price of XIC
over the past year you can see that it has steady growth our main goal with
these ETFs is to collect passive income but still great to see some capital
appreciation while we collected those 3% dividends at number 2 we have the
Vanguard ETF VDY is essentially a specialized subset of XIC focusing
only on the Canadian companies that pay a high dividend XIC contains the 235
largest companies in Canada but VDY contains only 54 of these companies who
pay out a large dividend mostly over 4% so you won't see any tech companies like
Shopify but VDY does pay out a significantly higher dividend yield at
4.25% and this dividend is paid out every month so you'll get very
steady income the VDY fund requires a bit more work
and maintenance they're not just tracking the largest Canadian companies
they also need to filter out the companies that pay high dividends and
companies can raise or cut their dividends anytime because of this extra
work VDY charges a higher management fee than XIC
with an MER of 0.22% that's almost four times the cost of XIC but it's still
less than 10 times the price of the average mutual fund
mutual funds charge an MER between 2% and 3% so only paying 0.22%
in MER is definitely a better option if you own one thousand dollars in VDY
you'll be paying $2.20 in fees every year again this fee is
built into the price of each share or we can take it out of our dividend income
VDY pays a dividend yield of 4.25%
minus the MER of 0.22% that gives us an annual net income of 4.03%
this is a great source of passive income while gaining decent
exposure of the Canadian market this dividend is paid monthly
we'll be getting smaller dividend payments but more frequently because of
this we'll need at least $9,800 to qualify for a DRIP with
ninety eight hundred dollars and a yield of 4.25% we'll get $416
a year or $34.70 every single month that's enough to buy yourself a
free share every month that's 12 free shares a year plus every month your
dividend will be getting larger and larger and that is the definition of
compound growth looking at the top ten holdings of VDY
they're almost exactly the same as XIC except that they took away the low
dividends Shopify and Canadian National Railway and instead bumped up Manulife
CIBC and sunlight financial into the top ten looking at the industry breakdown
VDY is even more focused on the financial industry with 65% of this fund
invested in banks and insurance companies oil gas and utilities make up
29% and the rest is pocket change this fund is far less diversified than XIC
and even though the Canadian banks are some of the best investments in the
world having too much of your money tied up in one single industry can be risky
so don't rely entirely on VDY make sure you also own the other ETS on
this list to get better diversification looking at the price chart of VDY
over the past year it definitely shows more volatility with some significant
dips but it still shows an overall increasing trend again by tracking such
already large Canadian companies we don't expect a huge amount of growth we
just want to collect that 4.25% of passive income any capital
appreciation we get is a nice bonus at number 3 we have the Blackrock ETF XEI
XEI is very similar to VDY in that it is a subset of the XIC holdings so XEI
only contains 75 of the largest Canadian companies
pay out a high dividend but they significantly shake up the proportion of
these companies compared to VDY and XIC. XEI has an even larger dividend
yield of 4.72% and this dividend is paid out monthly
like VDY this etf requires more work to manage
and it has an identical MER of 0.22% so if you own a thousand dollars in XEI
you'll be paying two dollars and 20 cents a year in fees with a dividend of
4.72% and an MER of 0.22% that gives us an annual net
income of 4.5% collected monthly to qualify for a DRIP you'll need to own
$5,660 dollars in XEI with a yield of 4.72%
that gives us $267 a year
in dividends or $22.65 every month the share price of XEI is currently $22.25
so with $5,660 invested in XEI you'll earn a
free share every single month or twelve shares a year XEI gives us a little bit
more income than vdy but its main difference is in its holdings XEI
contains 275 companies and it focuses more on energy stocks and less on
financials the top ten holdings still contain a lot of the same big companies
like Enbridge TC energy BMO CIBC and scotia bank but interestingly this ETF
does not contain TD or RBC which were the two largest holdings in vdy those
two banks alone made up 30% of VDY's value but they are completely absent in
XEI. XEI's holdings are spread out more equally in fact all of their top 10
holdings have an equal weight of 5% each looking at XEI's industry exposure you
can see that energy and financials are equal at 30% compared this to VDY which
has 65% in financials By stepped away from the financial industry XEI is able
to gain more exposure in telecommunications utilities and real
estate and so it is definitely more diversified and it is more
representative of the overall Canadian market looking at the price chart over
the past year it also appears to be a little less volatile with a more
consistent and gradual increase all while paying a generous 4.72%
in income every month the last ETF is VRE and it is the most
unique ETF on this list VRE is a real estate ETF
tracking the largest REITs in Canada in the same way that ETFs are a collection
of hundreds of stocks REITs are a collection of hundreds of real estate
properties all packaged together into one fund and the dividends or
distributions of a REIT come from the monthly rent earned from these
properties VRE is an ETF which contains 18 of the largest REITs in
Canada REITs are some of the best dividend investments out there so it's
no surprise that VRE has the highest dividend yield on this list with a yield
of 5.16% although this yield is a little higher than usual
since the price dropped a little bit last week but VRE usually has a yield
around 4.8% this ETF requires even more work to manage and so it has the highest
MER on this list with 0.39% but that's still pretty reasonable with a thousand
dollars invested in VRE you'll be paying less than four dollars a year in fees
subtracting this from our dividend of 5.16% gives us a
net annual income of 4.77% paid monthly to qualify
for a DRIP you'll need to own $8,100 in VRE with the yield of 5.16%
that gives us $418 a year in
dividends or $34.83 a month the current share price of VRE
is $34.72 and so we'll be earning a free
share every month that's twelve shares a year VRE only contains 18 Holdings
all of which are REITs the main holdings include RioCan which i talked about in
my top three dividend stocks as well as canadian apartments allied properties
smart centers and choice properties these REITs are fairly spread out
amongst the different real estate sectors we have 33% invested in
industrial and office properties 23% in residential and 20% in retail malls and
shopping plazas REITs are the best way for anyone to get involved in real
estate even if you don't have tens of thousands of dollars for a downpayment
and with VRE you are getting exposure to the entire Canadian real estate market
looking at the price chart over the past year again we see fairly steady and
consistent growth all while collecting that monthly passive income so there you
have it those are my four favorite Canadian ETFs for dividend income XIC
has the lowest yield but the widest exposure of the entire Canadian market
VDY has a higher yield and pays monthly income but it is heavily concentrated in
the financial sector XEI has an even higher yield paid monthly and it is more
heavily weighted in the energy sector and VRE also has a high-yield
paid monthly but it is entirely focused in the Canadian real estate market
you'll want to buy each of these ETFs and hold onto them for life to collect
that consistent quarterly or monthly passive income and hold these ETFs in
your TFSA to avoid paying any taxes on this income if your TFSA is maxed out
then put them in your RRSP also I suggest buying these ETS using
Questrade to avoid paying any Commission when you buy ETFs and this will save you
a ton of money in the long run so if you'd like to get signed up with Questrade
click my referral link in the box below and you'll get $50 in Commission free
trades when you buy stocks and you'll be helping support my channel I hope this
video helps you get started with ETF investing in Canada I'll be releasing
more stock pick recommendations such as my favourite bond ETFs my favorite US
dividend stocks and my favorite u.s. ETFs so stay tuned for those thanks for
watching guys and be sure to LIKE comment and subscribe if you found this
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everyone and I'll see you guys on the next episode of The Canadian in a t-shirt bye guys