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 my favorite canadian etfs that pay out a generous dividend
that you can hold on to for life and collect that passive income every month or every quarter
plus they give you a well-diversified exposure of the canadian market i recommend these etfs for
any investor especially for beginners who aren't ready to buy individual stocks i'm only going to
be talking about etfs and canadian dollars that contain canadian companies so no etfs attract
the u.s market i already have a whole video on my favorite u.s etfs the etfs i'm talking about today
give you purely canadian income so keep them in your tfsa rrsp or resp to avoid paying taxes
on those dividends for this video i'm going to assume that you know what an etf is what an mer
or management fee is and the basics of dividends drips and capital gains if you need a refresher
check out my previous videos in my millennial investing guide especially my etf explained and
then come back to this video basically 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're
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 there
are hundreds of etfs out there but today i want to focus on dividend etfs that are broad enough
and contain at least 40 holdings there are some etfs that only contain 10 companies but at that
point you might as well just buy those individual stocks and avoid paying that annual management
fee also i'm not going to include any covered call etfs since options trading is definitely
riskier and not recommended for beginners it's easy to get seduced by giant dividend yields of 7%
or above but those etfs usually remain flat or even lose value over time instead focus on etfs
that contain quality stocks with a bright future these are the etfs that you want to own to gain
both dividends and capital gains in the long term longtime viewers might know that i already made a
video on my favorite canadian dividend etfs which was one of my most popular videos but
that was over two years ago so i wanted to make an updated version with more current information
in that video i talked about a real estate etf called vre which i still invest in but i already
covered it in detail in my video on the best canadian reach etfs so click the pop-up at the
top right to check that out so without further ado let's jump into the best canadian etfs
for dividends let's start with xic xic tracks the tsx cap composite index so it tracks the 240
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 240 largest companies
in canada and the canadian market is dominated by the financial industry energy companies utilities
telecommunications and materials all of which happen to pay generous dividends compare this to
the u.s market which is absolutely dominated by tech companies like microsoft and apple
in fact eight out of the ten biggest american companies are tech and most of them don't pay
dividends at all but in canada most of the largest companies do pay dividends and with xic we collect
all of them and so xic is able to pay out a dividend yield of 2.4 percent and this dividend
is paid out every quarter this yield is definitely lower than usual since the share price is trading
at all-time highs right now but the dividend just increased this past month and we can definitely
expect another increase soon xic usually has a dividend yield above three percent xic has
the lowest dividend on this list but this etf 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 of this fund and
so xic can get away with rock bottom management fees with an mer of only 0.06 percent so if you
have a thousand dollars invested in xic it will only cost you 60 cents a year in management fees
that's almost nothing and a fraction of what you would pay for a mutual fund remember with etfs
you'll never see this management fee taken out as a transaction this fee is built into the price of
the share that you see another way to consider the effect of management fees is to subtract it
away from the dividend yield so if our dividend yield is 2.4 percent but we pay zero point zero
six percent in management fees our net income is two point three four percent per year of course
this doesn't include capital gains as the value of the etf grows this is just the income we obtain
every year through dividends let's calculate the amount you need to qualify for a drip remember
a drip allows you to reinvest your dividend and use it to buy more shares of a company rather
than receiving cash and the best part is you don't pay any commissions at all when you use a drip to
buy extra shares this is the best way to invest in the long term allowing your dividends to compound
automatically giving you true exponential growth this is especially useful when investing in stocks
but if you're using questrade which is my favorite online broker you don't pay commissions on etfs
anyway so a drip won't save you any money but it does automate the compounding growth of your etf
rather than to manually purchase an extra share every time you receive a dividend so
if you'd like to sign up with questrade use my referral link in the box below to receive
fifty dollars in commission free trade rebates plus i'll give a smaller full bonus as well so
back to xic with a yield of 2.4 percent and a share price of 35 dollars you'll need about 5
840 to qualify for a drip let's break it down with 5 dollars invested that two point four percent
yield will give you a hundred and forty dollars a year in dividends or thirty five dollars and four
cents every quarter the share price of xic is only thirty five dollars and so your dividend is enough
to automatically buy an extra share and then you'll receive the remaining four cents as cash
check out my drips explained video to learn how to calculate the drip amount for any stock or etf
so that covers the dividend and the mer we also want to consider the holdings of this etf
let's start with the industry breakdown this etf contains 240 of the largest canadian companies
and is well diversified across all different sectors just like the canadian market overall
xic is dominated by financials at 32 percent with energy materials and industrials between 12 and 16
each and that's good because all of these sectors pay out great dividends along with utilities and
telecommunications with about five percent each the only outlier is information technology which
makes up seven percent that's the only sector on this list which doesn't pay great dividends
and that's why xic is accidentally a dividend etf if you're curious about the rest consumer
staples means products that people need to buy like food and hygiene consumer discretionary
are the non-essentials like electronics looking at the individual holdings we have 240 of the
largest canadian companies weighted by market cap here we have the eight biggest players rbc and td
at six percent each then enbridge scotiabank brookfield canadian national railways shopify
and [ __ ] around three percent each you'll notice this fund is spread out pretty evenly
it isn't dominated by any one stock which is a good thing remember 32 percent of the fund was
in financials which makes sense since four out of the top eight stocks are banks if we kept going
the next 20 stocks have a weight between one and two percent so this etf definitely has the best
diversification any big company you can think of is probably here looking at the share price
over the last three years we can see a very clear upward trend as you can imagine we saw a huge drop
in the market crash of march 2020 but in a matter of months this etf was able to fully recover
and now we are back to all-time highs that's because this fund is investing in the most secure
and established canadian companies and these are quality stocks that you want to hold on
to for long-term capital appreciation all while collecting a great dividend along the
way this is important whenever i'm talking about dividend yields in this video i'm talking about
the trailing 12 months or ttm yield so for xic it has a ttm yield of 2.4 percent that means that if
you add up all of its dividends over the past 12 months divided by the current share price you get
2.4 percent but many etfs don't pay consistent dividends they can change on a month-to-month
basis so it's important to use the ttm yield to give you a reliable expectation of the entire
year's dividends the alternative is to use the forward yield where you assume that the current
month's dividend will continue for the rest of the year so if the dividend changes every month
the forward yield will swing up and down in the case of xic its dividend just increased this month
so its forward yield is higher than the ttm yield about 2.5 percent but i don't bank on this number
just to be safe i recommend using the ttm yield it's more reliable next up we have the vanguard
etf vdy vdy is essentially a specialized subset of xic focusing only on the companies that pay a high
dividend xic contained the 240 largest companies in canada but vdy contains only 40 of these
companies who pay out a high dividend most over three percent so you won't see any tech companies
like shopify but vdy will offer a significantly higher dividend at 3.4 percent and this dividend
is paid out every month so you'll get steady passive income vdy is one of those etfs whose
dividend fluctuates month to month so we are using the ttm yield of 3.4 percent and again
this yield is lower than usual because the fund is trading at all-time highs vdy usually pays a
yield above four percent so we should expect an increase soon as the share price grows the vdy
fund requires a bit more work and maintenance than xic they're not just tracking the largest canadian
companies they also need to filter out the ones which can 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 definitely higher but it's still less than 10 times the price
of the average mutual fund mutual funds charge an mer between two and three percent so only paying
zero point two two percent is a much better option if you own a thousand dollars in vdy you'll be
paying two dollars and twenty cents a year in fees again this fee is built into the share price or
i like to take it out of our dividend income vdy pays out a dividend yield of 3.4 percent
minus an mer of 0.22 percent we get an annual net income of 3.18 this is still a great source
of passive income while gaining decent exposure of the canadian market since this dividend is
paid monthly we'll be getting smaller dividend payments but more frequently this makes it harder
to qualify for a drip we'll need about 16 600 with a yield of 3.4 percent we'll get 564 a year
in dividends or 47 a month that's enough to buy ourselves a free share every month that's 12 free
shares every year i know 16 000 is a lot of money but remember you don't need to reach this drip
threshold all at once i'm certainly not there yet invest what you can and slowly build up to this
over the course of years in the meantime you'll be earning great passive income and capital gains
looking at the industry breakdown bdy is massively focused on the financial industry with over 57 of
the fund invested in banks and insurance companies energy companies like oil and gas make up 24
and the remainder is spread between communication utilities and materials all of which are dividend
heavy this fund is far less diversified than xic and even though the canadian banks are some of
the strongest 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 etfs on this list
to get better diversification looking at the largest holdings of vdy they are very similar to
xic except that they took away low dividends like shopify and canadian national railway and instead
bumped up more banks and energy companies vdy as a whole is dominated by the financial sector
with 57 and that makes sense since both td and royal bank alone make up 13 each that's
huge and very heavy waiting on just a handful of stocks in fact the big five banks are all in
the top seven holdings and the top five holdings make up almost fifty percent of the entire fund
this etf is very concentrated and much less diversified so keep that in mind looking at the
price chart of vdoi over the past three years it definitely shows more volatility since it depends
heavily on only a handful of stocks but again we see an overall upward trend as before it was able
to fully recover from the 2020 market crash very quickly and is back to all-time highs the graph
definitely mirrors the canadian banks overall so you can expect to see long-term capital gains
along with those reliable dividends every month at number three we have xei from blackrock xei
is very similar to vdy in that it is a subset of the xic holdings xei contains 75 of the largest
canadian companies which pay out a high dividend vdy on the other hand only contained 40 of these
companies so xci is already more diversified and xci right now has the same dividend yield of 3.4
percent and this dividend is paid out monthly again we're using the ttm yield here xei tends
to increase its dividend every two months so we'll definitely expect another increase soon as before
this 3.4 yield is lower than usual since the canadian market is at all-time highs normally xci
has a dividend yield well above four percent like vdy this etf requires more work to manage and it
has an identical mer of zero point two two percent so if you own a thousand dollars in xci you'll
be paying two dollars and twenty cents a year in fees with a dividend of three point four percent
and an mer of zero point two two percent that gives us a net income of three point one eight
percent collected monthly to qualify for a drip you'll need to own nine thousand nine hundred and
twenty dollars in xci with a yield of three point four percent that gives us 337 a year in dividends
or 28 and 10 cents a month that's enough to buy an extra share of xci every single month or 12
shares per year if you've seen my members only videos you know that i especially love xci because
of its low share price xdi only costs 28 dollars per share so whenever i have at least 28 dollars
in cash i buy myself a share or two of xci with questrade i don't pay commission fees
at all when i buy etfs so instead of sitting on cash which loses value due to inflation i spend
my excess cash on shares of xei if you'd like to see exactly which stocks and etfs i'm invested in
and to help support my channel hit that join button down below to gain access to my exclusive
videos like my tfsa and rrsp portfolio reveal and to see what stocks i'm buying every month
the membership program will cost you five dollars a month but please don't feel pressured to join
watching my videos and leaving a comment and a thumbs up is more than enough
and don't just blindly copy what i do but i hope that seeing my portfolio will offer some guidance
especially if you're just getting started xei is very similar to vdy in terms of the dividend yield
and the mer but the biggest difference is their holdings xei contains 75 companies and it's spread
out more equally focusing less on the financial sector and more so on energy you can see that
energy and financials are equal at 30 percent compare this to vdy which had a whopping 57
in financials by stepping away from the financial industry xci is able to gain more exposure in
telecommunications real estate and utilities and so it is definitely more diversified
and more representative of the overall canadian market looking at the top 10 holdings you can see
once again that xci is more equally spread out in fact all of the top 10 holdings are about 5
in weight so the top 10 make up 50 of the fund compare this to vdy where the top five made up 50
of the fund and td and rbc were 13 each clearly xci is more evenly distributed without being
dominated by any one stock looking at the stock chart over the last three years again we see a
clear upward trend with a remarkable recovery after the 2020 crash once again this etf is
trading at all-time highs but i will continue to invest in this etf as the canadian market
as a whole continues to grow that will earn me fantastic capital gains in the long term while
collecting that passive income every month along the way so there you have it those are the best
dividend etfs in canada xic has the lowest yield but the widest exposure of the entire canadian
market vdy has a higher yield and pays out monthly income but it is heavily concentrated in the
financial sector xci also has a high yield paid monthly and it is more evenly weighted between
the energy and financial sector i personally own all three of these etfs and even though there's
overlap between them it's important to diversify and gain exposure of the entire canadian market
rather than trying to pick the best one and to actually buy these etfs i recommend questrade
my favorite online broker and they won't charge you any commission fees when you buy etfs to get
started with questrade click my referral link in the box below and you'll get 50 in commission free
trade rebates for the first 30 days when you sign up that basically means that your first 10 stock
trades will be commission free and that saves you 50 plus i'll get a small referral bonus as well
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thanks everyone and i'll see you guys on the next episode of the canadian in a t-shirt bye guys