There are many dividend ETFs on the TSX, however this one is my favorite. It presents a strong 4% yield, is very tax environment friendly because of its give attention to eligible Canadian dividends, expenses low charges, pays month-to-month, and in contrast to a lot of its opponents, has truly outperformed the S&P/TSX 60 over time.
That’s the entire case, proper there. However in case you preserve studying, I’ll break down every of those factors in additional element and clarify why I consider the Vanguard FTSE Canadian Excessive Dividend Yield Index ETF (Tsx: vdy) is among the greatest long-term dividend ETFs in Canada.
What’s VDY?
VDY tracks the FTSE Canada Excessive Dividend Yield Index, a rules-based index that selects Canadian corporations with above-average dividend yields. It is a passive ETF, however it’s much more concentrated than your typical broad-market fund.
VDY holds solely about 50 shares, with a heavy tilt towards financials and power, two sectors that dominate the Canadian market and are identified for paying constant, excessive dividends.
The index’s give attention to yield offers the fund a pure worth tilt, however most of the corporations within the portfolio additionally rating properly on high quality metrics. On common, the portfolio trades at a 14.3 instances price-to-earnings ratio, has a return on fairness of 11.9%, and an earnings progress charge of seven.6%. There’s strong, elementary energy supporting every dividend.
VDY additionally stands out for its low price. The administration expense ratio is simply 0.22%, which suggests you’ll pay solely $22 yearly on each $10,000 invested. That’s lower than what most individuals spend on a single pizza night time.
VDY yield and efficiency
VDY at the moment yields round 4% with a current month-to-month distribution of $0.1474 per share. That determine displays the 12-month trailing yield. In case you had held the ETF over the previous yr, that is roughly what you’d have obtained in money payouts, on common.
It’s additionally extremely tax-efficient. In most years, all the dividend is taken into account a professional Canadian dividend, which will get preferential tax therapy in non-registered accounts.
In some years, there may be small quantities of capital positive aspects or return of capital, each of that are additionally tax-efficient. Capital positive aspects are taxed at half the speed of standard earnings and return of capital reduces your price base, which might defer taxes into the long run.
And in case you’re holding VDY inside a Tax-Free Financial savings Account (TFSA) and reinvesting your dividends, these tax benefits change into much more highly effective. Over the previous 10 years, VDY has compounded at a ten.2% annualized complete return, beating the broader S&P/TSX 60 Index, which did 981% annualized.
For traders on the lookout for reliable month-to-month earnings, tax-efficient money movement, and long-term compounding, VDY continues to ship. It’s the type of ETF that doesn’t simply pay you now. It builds wealth quietly, month after month.