Best Dividend Stocks in Canada for Long-Term Growth

Dividend ETFs come in many shapes, but this guide focuses on equity dividend ETFs. Important concepts to understand:

• Trailing yield: A historical measure — dividends paid over the past year divided by current price.
• Distribution yield: A forward-looking number that assumes the most recent payout continues into the future.
• MER (Management Expense Ratio): Annual fee embedded in the ETF’s price. Lower MERs preserve more of your returns over time.
• DRIP / Reinvestment: Dividends can be reinvested manually or automatically via a Dividend Reinvestment Plan (DRIP) or broker automation.
• Registered accounts: Use TFSA or RRSP when possible to shelter gains and dividends from taxes.

Top 3 Canadian Dividend ETFs

#3 — BlackRock XDIV (iShares MSCI Canada High Dividend Yield Index)

Overview & structure: XDIV tracks the MSCI Canada High Dividend Yield 10% Security Cap Index and is a concentrated fund with just 20 holdings. It’s heavily weighted to financials and energy.

• Sector exposure: ~46.6% financials, ~31% energy, ~13% utilities
• Top holdings: Sun Life, TD, Manulife, RBC, Enbridge, Suncor, Fortis
• Yields: Trailing yield ~4.40%; Distribution yield ~4.76%
• MER: 0.11% (very low)
• Performance: 5-year return ~18.19%; since inception (2017) ~10.75%

Pros: Attractive yield, very low MER, strong recent performance for a dividend ETF, concentrated exposure to high-yield sectors.

Cons: High concentration in financials and energy increases sector-specific risk; only 20 holdings reduces diversification.

Best for: Investors who want high dividend income from Canada and are comfortable with concentrated exposure to financials and energy.

#2 — BlackRock XEI (iShares S&P/TSX Composite High Dividend Index)

Overview & structure: XEI mirrors the S&P/TSX Composite High Dividend Index and is more diversified with 75 holdings across sectors that pay high dividends.

• Sector exposure: ~30% financials, ~29% energy, ~15% utilities, ~10% communications
• Top holdings: RBC, TD, Suncor, Fortis (similar names to XDIV but lower individual weightings)
• Yields: Trailing yield ~5.79%; Distribution yield ~5.24%
• MER: 0.22%
• Performance: 5-year return ~17.06%; since inception (2011) ~7.33%
• Dividend frequency: Monthly distributions

Pros: Higher yield than XDIV, broader sector diversification, long track record since 2011. Monthly payments are useful for cash flow planning.

Cons: MER is higher than XDIV (0.22%), but net yield remains strong after fees.

Best for: Investors who want a higher monthly income with more sector diversification while still focusing on Canadian dividend payers.

#1 — Vanguard VDY (Vanguard FTSE Canada High Dividend Yield Index)

Overview & structure: VDY tracks the FTSE Canada High Dividend Yield Index. It’s a high-dividend, equity-only ETF with notable concentration in a few big names.

• Sector exposure: ~55.5% financials, ~30% energy
• Concentration: Top 10 holdings ≈ 70% of the portfolio
• Top holdings: RBC, major banks, Canadian Natural Resources, Enbridge, Suncor
• Yields: Trailing yield ~4.08%; Distribution yield ~5.27%
• MER: 0.22%
• Performance: 5-year return ~13.46%; since inception (2012) ~10.00% (solid long-term growth)
• Accessibility: Fractional shares available on many brokers, so high per-share price is not a barrier

Pros: Strong long-term track record, attractive distribution yield, consistent dividend history and growth over many years.

Cons: Highly concentrated, heavy exposure to financials and energy—investors must be comfortable with confidence in those names.

Best for: Investors seeking a proven Canadian dividend ETF with both reliable distributions and demonstrated long-term appreciation.

Why Not XIC?

Some investors favor XIC because it represents the entire Canadian market, which maximizes diversification. However, this guide argues that diversification should serve a purpose. If the goal is dividend income, an ETF that focuses on higher-yielding sectors (like banks and energy) will deliver more income. XIC’s trailing yield (~2.9%) is lower than the dividend-focused ETFs above. The choice comes down to goals: maximum market coverage versus concentrated dividend income.

Practical Tips for Dividend ETF Investors

• Use dividend reinvestment: Automatic reinvestment (DRIP) compounds returns—many brokers, including Wealthsimple, offer automation to reinvest dividends in registered accounts.
• Consider MER vs yield: Don’t fixate solely on MER. A slightly higher MER can be worth it if the ETF’s yield or long-term performance is meaningfully better.
• Registered accounts first: Prioritize TFSA or RRSP to shelter gains and dividends from taxes.
• Don’t put everything into dividend ETFs: Treat dividend ETFs as part of a broader allocation that may include growth ETFs, international equity, bonds, commodities, or alternative assets depending on risk tolerance and goals.
• Match ETF to outlook: If you’re optimistic about Canadian financials, a fund with heavy bank exposure could be attractive. If you prefer broader income diversification, choose an ETF with wider sector spread.

Final Recommendation

VDY, XEI, and XDIV are all solid Canadian dividend ETF choices in 2025. The final pick should reflect:

1. Income needs (higher yield vs stability)
2. Sector preference (financials vs diversified income mix)
3. Time horizon (long-term growth vs short-term income)
4. Fee sensitivity (MER) and tax-account placement (TFSA/RRSP)

Any of the three can serve as the backbone of a Canadian dividend income strategy. For investors who want an established blend of yield and long-term growth: VDY ranks highest here for its long track record. For those who want slightly higher current yield with broader exposure: XEI is compelling. For a low-cost, high-yield concentrated play on Canadian banks and energy: XDIV is worth considering.

Next Steps

Decide on your allocation to dividend ETFs within your overall portfolio, set up dividend reinvestment where appropriate, and prioritize registered accounts. Evaluate sector exposure and choose the ETF that best matches your income goals and risk tolerance.