Best dividend ETFs in Canada for 2025: Earn passive income

Noel Moffatt Writer

Updated Apr 1, 2025

Looking for the best dividend ETFs in Canada? Discover top-performing ETFs that offer high yields and stable income. Compare fees, holdings and find the best option for your portfolio.

While we adhere to strict editorial guidelines, partners on this page may provide us earnings.

If you’re looking to add some steady, passive income to your portfolio (because who doesn’t love getting paid just for holding onto stocks?), then these dividend ETFs might be your new best friend. 

Looking broader? Check out the Best ETFs in Canada

Dividend ETF name Fast facts
iShares Canadian Select Dividend Index ETF (XDV) MER: 0.55%
Dividend yield: 4.22%
Top holdings: Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia
Vanguard FTSE Canadian High Dividend Yield Index ETF (VDY) MER: 0.22%
Dividend yield: 4.38%
Top holdings: Royal Bank of Canada, Toronto-Dominion Bank, Enbridge Inc.
BMO Canadian Dividend ETF (ZDV) MER: 0.39%
Dividend yield: 4.00%
Top holdings: Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia
iShares Core MSCI Canadian Quality Dividend Index ETF (XDIV) MER: 0.11%
Dividend yield: 4.12%
Top holdings:Royal Bank of Canada, Toronto-Dominion Bank, Enbridge Inc.
BMO Canadian High Dividend Covered Call ETF (ZWC) MER: 0.72%
Dividend yield: 6.00%
Top holdings:Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia
iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (CDZ) MER: 0.66%
Dividend yield: 3.18%
Top holdings: Keyera Corp, SmartCentres Real Estate Investment, Enbridge Inc.

Best Canadian Dividend ETFs stock price today

Tab through the names at the top of the chart to see how each of the dividend ETFs are performing. 

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  • 1. iShares Canadian Select Dividend Index ETF (XDV)

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    Best for: High-yield Canadian dividend stocks, mainly in the financial sector.

    If you like the idea of investing in big, stable dividend payers, XDV might be up your alley. This ETF focuses on high-yielding Canadian companies, mostly banks and financial stocks, because let’s be real, those guys love paying dividends.

  • 2. Vanguard FTSE Canadian High Dividend Yield Index ETF (VDY)

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    Best for: High-dividend stocks with a tilt towards financials and energy.

    VDY is a solid pick if you’re after big dividend yields without overcomplicating things. It has a hefty allocation to Canada’s financial and energy sectors, meaning you’re investing in bank stocks and oil companies that love sending out dividends like clockwork.

  • 3. BMO Canadian Dividend ETF (ZDV)

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    Best for: A balanced approach between yield and diversification. [3]

    ZDV is a yield-weighted ETF, meaning it focuses on stocks that pay higher dividends, but it doesn’t go all-in on just one sector. This gives you a bit more diversification, so your dividends aren’t entirely dependent on how banks or oil stocks are doing.

  • 4. iShares Core MSCI Canadian Quality Dividend Index ETF (XDIV)

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    Best for: Reliable dividend stocks with strong financials.

    Not all dividend stocks are created equal, and XDIV takes that into account. This ETF picks companies with high-quality fundamentals, so you’re not just chasing high yields, but also sustainability. That means fewer dividend cuts and a focus on companies that can keep paying, even in rough markets.

  • 5. BMO Canadian High Dividend Covered Call ETF (ZWC)

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    Best for: Maximizing income through a covered call strategy.

    If you’re all about cash flow, ZWC could be your new best friend. It invests in high-dividend stocks but also sells covered call options on them, which adds extra income on top of the dividends.

    The trade-off? You might cap your upside a little bit, but if your goal is steady income, this is a strong option.[1]

  • 6. iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (CDZ)

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    Best for: Long-term dividend growers with a solid track record.

    CDZ doesn’t just look at dividend yield; it only includes companies that have increased their dividends for at least five consecutive years. That means you’re investing in businesses that prioritize rewarding shareholders and have a strong history of dividend growth. It’s also well-diversified across financials, energy and real estate.[2]

How to choose the best dividend ETF for your portfolio

Choosing the best dividend ETF isn’t just about grabbing the one with the highest yield. It’s about finding one that fits your investment goals, risk tolerance, and income needs. 

Here’s what to keep in mind when picking the right one for you.

Sure, a high dividend yield looks great on paper, but if it’s too good to be true, it probably is. Some high-yield stocks struggle to maintain their payouts or could even cut dividends if things go south.

👀 What to look for: ETFs with a history of consistent and growing dividends. You want long-term reliability, not just a short-term cash grab.

🚩 Red flag: If an ETF is offering way higher yields than competitors, check if it’s sustainable or if the fund is over-leveraged.

The MER is the annual fee ETF providers charge to manage the fund. It might not seem like a big deal, but over time, higher fees can eat into your returns.

Low-cost option: XDIV (0.11% MER): You keep more of your returns.Higher-cost option: ZWC (0.72% MER): More expensive, but has a covered call strategy for extra income.

Bottom line: If two ETFs have similar holdings, go with the one with the lower MER, because why pay more if you don’t have to?

Most Canadian dividend ETFs love banks and oil stocks, which makes sense because they pay strong dividends. But being too concentrated in these sectors can backfire if the market shifts.

Diversified pick: CDZ - This ETF includes real estate, consumer goods and industrials, not just banks and energy.

Sector-heavy pick: VDY - This ETF has a strong yield, but very financial and energy-focused.

Tip: If you’re already heavy on bank stocks in your portfolio, consider a more balanced ETF to avoid overexposure.

Dividend ETFs either pay out monthly or quarterly, and while this might not seem like a big deal, it affects cash flow.

Monthly payouts: ZWC: Ideal if you want a steady paycheck-like dividend stream.Quarterly payouts: VDY: Pays every three months, so plan accordingly.

Who this matters for: Retirees or anyone relying on dividends for regular income will likely prefer monthly distributions. If you’re reinvesting, quarterly is fine.

A fund with more money in it equals more stability, better liquidity and lower trading spreads. No one wants to be stuck with an ETF that’s hard to buy or sell.

High AUM (more investor confidence): VDY, XDV: Large funds with deep liquidity.Low AUM (less trading volume): Some niche ETFs might have higher bid-ask spreads, which means you could lose more money when trading.

Rule of thumb: Stick to ETFs with solid AUM unless you’re making a very specific play.

Yield matters for income. MER matters for long-term growth.

Rule of thumb

If you're investing for cash flow right now — like a retiree living off dividends — then yield takes priority. You want those regular payouts to be high and reliable, even if the ETF has a slightly higher MER.

But if you're in it for long-term compounding — say, you’re reinvesting dividends in a TFSA or RRSP — then MER becomes more important. A lower MER means fewer fees eating into your gains year after year, and over decades, that can make a huge difference.

  • High yield, high MER (like ZWC) Better for income seekers who don’t mind giving up some growth.
  • Moderate yield, low MER (like XDIV) Better for long-term investors focused on compounding and growth.

How to buy dividend ETFs in Canada

Buying dividend ETFs in Canada is super easy, and you can do it all online through a brokerage account. Platforms like Questrade, Qtrade and Wealthsimple give you access to both US and Canadian ETFs, with low fees and even commission-free ETF purchases on certain platforms.

Top discount brokerages for buying dividend etfs

Related read: Questrade vs. Wealthsimple

Step by step guide to buying a dividend ETF

  • 1. Open a brokerage account: Sign up to a trading platform and choose a TFSA, RRSP or non-registered account depending on your investment goals.
  • 2. Deposit funds: Transfer money from your bank account to your brokerage account.
  • 3. Search for the ETF: Enter the ticker symbol in the brokerage’s search bar to find the dividend ETF you want to buy such as VDY, XDV or ZDV based on our examples above.
  • 4. Place an order: Click "Buy," choose the number of shares, and select either a market order (buys instantly at the current price) or a limit order (sets your own price).
  • 5. Confirm and hold: Complete the transaction and monitor your investments over time. If you’re in it for the long haul, consider setting up Dividend Reinvestment Plans (DRIPs) to automatically reinvest your payouts.

Are dividend ETFs a good investment?

Dividend ETFs are a solid option if you’re looking for passive income and diversification without the hassle of picking individual stocks. 

Instead of betting on one or two companies to keep paying dividends, you get a whole basket of them, spreading the risk and reducing the chances of one bad stock wrecking your returns.

Pros

Pros

  • Lower risk and volatility: Dividend ETFs hold dozens, sometimes hundreds, of stable, cash-generating companies. If one stock drops, others help cushion the blow. Because most of these companies are well-established (think banks, utilities, telecoms), the overall ride tends to be smoother than with growth stocks.

  • Built-in diversification: With just one ETF, you get instant exposure to a broad mix of dividend-paying companies across sectors. That means you don’t have to spend hours researching individual stocks or worry about one bad pick dragging down your entire portfolio.

  • Reliable passive income: Dividend ETFs pay out consistent income—often monthly or quarterly — without any extra work from you. Great for reinvesting or covering expenses, especially in retirement. And if your broker offers DRIP, you can automatically reinvest those payouts to boost long-term growth through compounding.

  • Reinvestment: Many brokers offer Dividend Reinvestment Plans (DRIPs), which automatically reinvest your payouts into more ETF shares. Over time, this compounds your returns, because why take the cash now when you can make even more in the long run?

Cons

Cons

  • MER fees: Unlike individual stocks, ETFs charge an annual expense ratio (MER) to cover management costs. It’s usually low, but over time, even small fees can eat into your returns.

  • Sector concentration: A lot of Canadian dividend ETFs are super heavy on financials and energy. While these sectors are reliable dividend payers, it does mean your investment is less diversified than you might think.

Who should invest in dividend ETFs?

Dividend ETFs aren’t just for one type of investor. They can work whether you’re looking for steady income or long-term growth. Here’s how they fit different investing goals:

So whether you’re after consistent income or long-term growth, dividend ETFs offer a diversified, lower-risk way to invest in dividend stocks, without the headache of managing them yourself.

How dividend ETFs distribute income

It’s pretty simple really. ETFs collect all the dividends from the stocks it holds and pass them down along to you. From there, you can either take the money as cash (nice little payday) or reinvest it into more ETF units for even bigger long-term gains.

Most dividend ETFs distribute payments monthly or quarterly, so you’ll see a steady stream of income hitting your account.

Tax advantages of dividend ETFs in Canada

  1. 1 Favourable tax treatment: Canadian dividend ETFs holding domestic stocks benefit from the Canadian Dividend Tax Credit, which reduces the tax burden on eligible dividends in taxable accounts.
  2. 2 Tax advantaged accounts: Holding dividend ETFs in a TFSA (Tax-Free Savings Account) allows for tax-free growth and withdrawals, while an RRSP (Registered Retirement Savings Plan) defers taxes until retirement. 
  3. 3 Lower turnover, lower taxes: Compared to actively managed funds, many dividend ETFs actually have a lower portfolio turnover, leading to fewer taxable capital gains distributions.

Dividend ETFs give you exposure to a bunch of dividend-paying companies while saving you the hassle of picking individual stocks. Plus, they’re managed by professionals, and the fees are usually lower than if you went out and built a similar portfolio yourself.

FAQs about Canadian dividend ETFs

  • What is the highest-paying dividend ETF in Canada?

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    One of the highest-yielding dividend ETFs in Canada is BMO Canadian High Dividend Covered Call ETF (ZWC), which offers a yield of around 6%. This ETF enhances income using a covered call strategy, but keep in mind that higher yields can come with trade-offs, such as limited capital appreciation and sector concentration.

  • How often do dividend ETFs pay out?

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    Most Canadian dividend ETFs distribute income monthly or quarterly. Funds like BMO’s ZWC and iShares XDV typically pay monthly, providing a steady income stream, while others, like Vanguard VDY, distribute dividends quarterly.

  • Can you live off dividends in Canada?

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    Yes, but it requires a large investment portfolio. To generate $50,000 per year at a 4% dividend yield, you’d need at least $1.25 million invested in dividend ETFs. While possible, it's important to consider market fluctuations, taxation and inflation, making a mix of dividends and other income sources a more sustainable strategy.

  • Are covered call dividend ETFs a good idea?

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    Covered call ETFs, like ZWC, enhance income by selling call options but may limit capital gains. They’re ideal for income-focused investors, such as retirees, but not for those seeking long-term growth. While they provide higher yields, the trade-off is potential underperformance during strong market rallies.

  • Should I buy dividend ETFs in my TFSA or RRSP?

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    Dividend ETFs work well in both accounts, but Canadian dividend ETFs are best in a TFSA due to tax-free withdrawals. In an RRSP, US dividend ETFs can be better since they are exempt from the 15% US withholding tax. In taxable accounts, Canadian dividend ETFs benefit from the Dividend Tax Credit.

Noel Moffatt Writer

Noel Moffatt is a Canadian fintech expert with a passion for simplifying personal finance. Based in St. John’s, NL, he draws on his background in finance, SEO, and writing to deliver clear explanations and actionable advice. Noel is dedicated to equipping readers with the knowledge and tools they need to make informed financial decisions, striving to make personal finance more accessible and understandable through his in-depth articles and reviews.

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