Best Dividend ETFs in Canada (2026): VDY, XEI, XDIV, CDZ, ZDV and More Compared

A dividend ETF holds a basket of companies that pay dividends and passes that income on to you, with the stocks chosen by whatever rules the fund follows. Those rules are the main difference between the funds: some take the highest payers, some want a record of rising dividends, some add tests of financial health. Where the companies are based is the second difference. This page explains how the funds choose their stocks and what a big payout can cost, then lays out the main Canadian-listed dividend ETFs together using each issuer’s own figures, without naming a winner.

Jump to a category:

• Canadian stocks
• US stocks
• International stocks
• Global stocks

How do dividend ETFs pick their stocks?

Yes, ETFs pay dividends, in the sense that a fund holding dividend stocks hands that money to its unitholders as regular payments called distributions. What separates one dividend ETF from another is how it decides which companies to own. The funds in this page’s table use four broad approaches:

• Highest payers. VDY follows FTSE’s index of Canadian companies with high dividend yields. XEI takes 75 stocks from the S&P/TSX Composite whose yields sit above the middle of that index, and XDV holds 30 of the highest-yielding Canadian companies, also screened on dividend growth and payout.
• A record of raising dividends. CDZ’s index generally looks for large, established Canadian companies that have raised their regular cash dividend every year for at least five years in a row. Vanguard’s VGG does the same kind of thing for US companies with a history of increasing dividends.
• Yield plus quality tests. iShares says the indexes behind its Core Quality Dividend ETFs, XDIV among them, keep stocks yielding at least 1.3 times their parent index, then drop companies whose dividend per share has shrunk over five years, whose payout is extremely high or negative, or that score poorly on measures such as return on equity, earnings variability and debt.
• A manager’s rules. For BMO’s ZDV, BMO describes a rules-based approach rather than naming an index it tracks: it weighs dividend growth, yield, payout and liquidity, and rebalances monthly. Manulife says CDIV’s quantitative approach looks for companies paying a consistent and growing dividend, “not just the highest dividend payers in the market”.

Why isn’t a higher yield free?

A stock’s dividend yield is its yearly dividend divided by its current price. So a falling price pushes the yield up even when the dividend stays the same, and a high figure can come from a price drop rather than a bigger payment.

Dividends also carry no promise. The Ontario Securities Commission’s investor site says a company can delay, cut or drop its dividend at any time, and that even large firms with a long record of paying are exposed to global events and market swings.

A fund that follows a high-yield index can also be concentrated. Vanguard notes that Canada’s stock market leans on a few large companies, and VDY, which follows a high-dividend-yield index, holds about 59% in financials and 29% in energy, by Vanguard’s sector labels. Funds with growth and quality screens aim at something other than the top yield: iShares describes its quality-dividend funds as holding companies with “high and sustainable dividends,” and Manulife says CDIV looks beyond the highest payers.

The main dividend ETFs compared

The table lists Canadian-listed dividend ETFs from Vanguard, iShares, BMO and Manulife that publish an MER and a source, grouped by where the companies they hold are based: Canada, the US, developed markets outside North America, and developed markets worldwide. Covered-call dividend funds, which add an option strategy, are on our covered-call page instead.

Issuer-published figures. None of the funds outside Canada is hedged to the Canadian dollar. Holdings as of August 31, 2026 and September 30, 2026. MER as of BMO: the latest audited year (fact sheet of September 30, 2026); Manulife: December 31, 2025; Vanguard: June 30, 2026; iShares: June 30, 2026 (each issuer's latest reported MER). Each ticker links to the issuer's page, which has the current price, holdings, distributions and performance.

“How it picks stocks” sums up each fund’s rule in a few words; the issuer link on each ticker has the full description, holdings list, price and performance. There are no return or yield columns. Past results don’t show how a fund will do next, and issuers measure yield in different ways: BMO, for one, takes the latest regular distribution, annualizes it and divides by the fund’s net asset value, while Vanguard shows both a 12-month trailing yield and a distribution yield. The issuer link shows the current figure. Each fund’s ETF Facts document gives its risk rating and a section on what it costs.

How do the funds differ?

How many stocks they hold. XDIV, whose MSCI index caps each company at 10%, holds 21 stocks, against 75 for XEI and 93 for CDZ. The international and global funds spread much wider: VIDY holds 629 stocks and XDG 368, against VDY’s 60.

How much is in financials. By each issuer’s sector labels (VDY as of August 31, 2026, XDIV as of October 8, 2026, ZDV as of September 30, 2026, XEI as of October 9, 2026), financials make up 59% of VDY, 46% of XDIV, 39% of ZDV and 30% of XEI. XEI’s index limits any one sector to 30% and any one stock to 5%, resetting those caps at each quarterly rebalancing.

Fees. Among the Canadian funds, XDIV has the lowest MER, 0.11%, and CDZ the highest, 0.66%. You pay the MER whether the fund rises or falls.

VDY vs XEI

Both pick Canadian stocks by yield from an index: VDY follows the FTSE Canada High Dividend Yield Index, XEI the S&P/TSX Composite High Dividend Index.

• Holdings: 60 in VDY, 75 in XEI.
• Financials (VDY on August 31, 2026, XEI on October 9, 2026): 59% in VDY, 30% in XEI.
• Energy: 29% in VDY, 31% in XEI.
• MER: 0.22% for both.
• Distributions: VDY monthly, XEI monthly.

So the MER is the same, and the difference is spread: VDY has more in financials, while XEI, whose index caps each sector at 30% at each quarterly rebalancing (weights can drift between), holds 30% in financials and 31% in energy. The two issuers use their own sector labels and dates, so treat the split as approximate. See how the funds differ.

ZDV vs VDY

The difference here is the method. VDY tracks an index of high-yield Canadian stocks; BMO names no index for ZDV and describes picking its stocks by its own rules on dividend growth, yield, payout and liquidity, rebalancing monthly. ZDV holds 62 stocks to VDY’s 60, with 39% in financials against 59%. It costs more: an MER of 0.39% against 0.22%. Both pay monthly.

US and international dividend ETFs

The table’s other rows hold dividend stocks from outside Canada while trading in Canada. VGG follows an index of US companies with a history of raising dividends and holds Vanguard’s US-based Dividend Appreciation ETF to do it. ZDY applies BMO’s rules-based dividend approach to US stocks, and ZDI to developed markets outside North America. VIDY follows FTSE’s high-dividend-yield index for developed markets outside Canada and the US, and XDG the MSCI World High Dividend Yield Index.

Two US-listed dividend funds are useful context. Schwab’s SCHD, listed on NYSE Arca, tracks the Dow Jones U.S. Dividend 100 Index; Vanguard’s VYM tracks the FTSE High Dividend Yield Index of US stocks with above-average dividends. On this page’s table, VDY and VIDY follow FTSE high-dividend-yield indexes for Canada and for developed markets outside North America, the same index family VYM’s US index belongs to by name.

The table’s hedged column shows these funds as unhedged, so exchange rates also move their value; BMO, for example, says ZDY and ZDI benefit when the local currency rises. iShares offers hedged versions of some of these strategies, such as XDGH for XDG’s index and XHD, the CAD-hedged version of its US High Dividend Equity fund XHU; hedging reduces currency swings but can’t remove them. BlackRock says Canadian-listed funds holding US stocks face the same US withholding tax whether they own the stocks directly or through another ETF. Our page on US-listed vs Canadian-listed ETFs covers withholding by account and hedging.

Monthly distributions and reinvesting them

An ETF doesn’t reinvest its cash distributions for you, but your investment firm may offer a plan that buys more units automatically, probably without a commission. See DRIP investing in Canada for how that works and how it affects your cost base.

How are dividend ETF distributions taxed?

In a non-registered account, dividend income can be taxed less than interest, thanks to federal and provincial credits. Dividends from taxable Canadian corporations are grossed up and then reduced by a dividend tax credit; foreign dividends don't qualify. A dividend is an eligible dividend only when the Canadian corporation paying it to a resident of Canada designates it as one (eligible dividends usually come from Canadian public corporations and other corporations resident in Canada that are subject to the general corporate tax rate); other taxable dividends, usually from Canadian-controlled private corporations subject to the small business tax rate, are other than eligible (non-eligible) dividends. The taxable amount, reported on line 12000, is the dividend plus a gross-up of 38% for an eligible dividend or 15% for a non-eligible one, whose taxable amount also goes on line 12010. The federal dividend tax credit is 15.0198% of the taxable amount of eligible dividends and 9.0301% of the taxable amount of other dividends: the total of the credit amounts on your slips (T5 boxes 12 and 26, T3 boxes 39 and 51), or from the line 40425 chart of the Federal Worksheet without a slip. Outside Quebec, a provincial or territorial dividend tax credit, at the rates of the province or territory where you lived at the end of the year, is claimed on line 61520 of Form 428; Quebec residents claim Quebec's credit on their Revenu Québec return. The dividend tax credit guide explains the gross-up and credit.

A fund set up as a mutual fund trust sends you a T3 slip, and its distributions can be dividends, foreign income, capital gains, interest, return of capital or a mix. A return of capital is the part of a fund's distribution that is more than its earnings; it isn't taxed in the year you receive it but reduces the adjusted cost base (ACB) of your units, which generally means a larger capital gain or smaller capital loss when you sell, and if it takes the ACB below zero the negative amount is a capital gain for that year. See how ETFs are taxed and return of capital on the T3.

Dividend ETFs vs covered-call ETFs

A covered-call ETF holds stocks and sells call options on them, collecting premiums on top of the dividends. The cost is the upside: if the stocks rise past the option’s strike price, the fund gives up the gain above it, as Fidelity explains. Some funds combine both: BMO’s ZWC holds dividend-paying Canadian stocks chosen by rules much like ZDV’s and writes covered calls on them. Our covered-call ETF page compares those funds.

What don’t dividend ETFs do?

• They don’t guarantee the income. The companies set their dividends and can cut them, and no ETF promises its performance; you can get back less than you put in.
• They don’t spread you evenly across the market. The Canadian funds lean on financials and energy, as the figures above show, and Canada’s market already rests on a few large companies.
• They don’t avoid tax in a taxable account. Distributions are reported every year, and selling units can trigger a capital gain.
• They aren’t deposits. ETFs aren’t covered by CDIC deposit insurance.

Where to go next

• Where to buy ETFs: compare brokers
• Covered-call ETFs in Canada
• DRIP investing in Canada
• ETFs for retirement income
• Dividend stocks in Canada
• All ETF guides