Earlier this yr, BCE (TSX:BCE) slashed its dividend in half. I don’t find out about you, however I choose my dividend investments to not pay me much less simply because administration can’t run the enterprise correctly.
Each firm has points, which is why I choose to diversify via an exchange-traded fund (ETF). For Canadian dividend publicity, few choices are higher than Vanguard FTSE Canadian Excessive Dividend Yield Index ETF (TSX:VDY). Right here’s why it’s on the prime of my checklist.
What’s VDY?
VDY tracks the FTSE Canada Excessive Dividend Yield Index. This benchmark screens the complete Canadian market—large-, mid-, and small-cap shares—and selects the highest half of corporations primarily based on dividend yield.
From there, it market-cap weights the portfolio, which suggests it finally ends up closely concentrated in greater financials and vitality shares, Canada’s two dominant dividend-paying sectors.
The ETF gives a trailing 12-month yield of three.67%, pays dividends month-to-month, and fees a low 0.22% administration expense ratio (MER). With its emphasis on dividend payers, VDY additionally tilts towards worth shares.
Why I like VDY
From inception via 2024, VDY’s dividend payouts have grown at an annualized fee of 9.09%, effectively forward of Canada’s long-term inflation common of about 2%.
Which means traders not solely acquire regular earnings, however additionally they see their payouts develop in actual phrases over time. Furthermore, VDY can be one of many extra tax-efficient dividend ETFs, notably in taxable accounts.
In 2024, for instance, VDY distributed $2.451 per share, of which the overwhelming majority ($2.15701) was eligible dividends. A smaller portion ($0.29367) got here as capital beneficial properties, which additionally profit from preferential tax remedy, whereas a negligible $0.00071 was the return of capital.
On prime of that, VDY’s efficiency has been spectacular. With dividends reinvested, it has delivered a 12.36% annualized return during the last 10 years—truly beating the S&P/TSX 60.
That’s no small feat, as most dividend ETFs are inclined to lag their benchmarks resulting from sector tilts or greater charges. VDY’s potential to outperform whereas nonetheless prioritizing yield exhibits why it’s earned a spot as a core Canadian dividend holding.
The Silly takeaway
You don’t have to get fancy by selecting dividend shares or paying up for costly lively funds. Vanguard already gives a lineup of low-cost index ETFs that constantly ship, and VDY is the one which caters on to dividend traders. It checks all of the packing containers—low charges, robust yield, dividend progress, tax effectivity, and even benchmark-beating efficiency.
