Constructing a dividend machine by the Tax-Free Financial savings Account (TFSA) doesn’t should be a cumbersome, time-consuming course of. Alternate-traded funds (ETFs) are certified investments in a TFSA. Along with simplifying the screening standards, ETFs provide prompt diversification to dividend-focused traders.
The best profit for TFSA customers is the power to decide on the TSX’s ‘cream of the crop’ or deal with sector-specific ETFs. Furthermore, you get rid of the burden of fixed administration or monitoring. Each ETF has an asset supervisor and distributions may be quarterly or month-to-month.
Downside-free earnings technology
Vanguard FTSE Canadian Excessive Dividend Yield ETF (TSX: VDY) tracks the efficiency of a broad Canadian fairness index. In 2025, the TSX delivered a plus-28% whole return, beating the plus-18% within the earlier yr. It was additionally the biggest one-year acquire since 2009. Vanguard International Fairness Index Administration, a specialised administration group, is the funding supervisor.
ETFs commerce like shares. Should you make investments at this time, the share worth is $64.84. Present traders get pleasure from a virtually 5% year-to-date acquire along with the three.2% distribution yield. The payout frequency is month-to-month. VDY’s three-year whole return is an honest plus-69.4%, representing a plus-19.2% compound annual development price (CAGR).
VDY has 56 inventory holdings, with solely the actual property and healthcare sectors having zero illustration. The 2 largest shares by market cap, the Royal Financial institution of Canada and Toronto Dominion Financial institutionlead the ETF’s high 10 holdings.
Given the deal with dividend-paying large-cap Canadian shares, you may one way or the other generate a month-to-month stream of tax-free passive earnings the problem-free manner.
Liquid Canadian firms
BMO S&P/TSX Capped Composite Index ETF (TSX:ZCN) seeks to duplicate the efficiency of the S&P/TSX Capped Composite Index. The Financial institution of Montreal launched this ETF in Might 2009, with BMO Asset Administration because the fund supervisor.
ZCN is a market capitalization-weighted index; the basket contains largely the biggest and most liquid Canadian firms. The highest 10 holdings embrace Agnico Eagle Mines and Barrick Mining from the top-performing fundamental supplies sector.
Like VDY, this ZCN has no investments in actual property and healthcare shares. The present share worth is $43.50, together with a dividend yield of two.2% and quarterly payouts.
Vitality sector-focused
The goal publicity of the iShares S&P/TSX Capped Vitality Index ETF (TSX:XEG) is Canada’s vitality sector. As of this writing, vitality is the TSX’s top-performing sector with a plus-14.6% year-to-date acquire. At $22.01 per share, you may partake within the 3.3% yield and earn dividend earnings each quarter.
Word, nonetheless, that XEG’s threat score is excessive. Concerning the 26 inventory holdings, the publicity focuses on oil & fuel exploration and manufacturing firms and built-in oil & fuel firms. The highest two holdings are Suncor Vitality and Canadian Pure Assets.
The plus-508.9% five-year return (32.53% CAGR) suggests regular efficiency, however the unstable nature of the vitality sector and the ETF’s excessive threat score.
Low upkeep
Investing in ETFs similar to VDY, ZCN, and XEG eliminates the high-maintenance job of handpicking particular person shares to earn tax-free passive earnings. The professionally managed funds will proceed to operate as dividend engines in a TFSA