When it comes to investing in a Tax-Free Savings Account (TFSA), dividend exchange-traded funds (ETFs) are a fantastic option. These provide steady income, long-term capital appreciation, and diversification. All with tax-free growth. And just in time, too. Canadians are feeling the pinch lately, but perhaps no one more so than those on the dating scene.
In a recent survey by Capital One Canada, the company found that 87% of Canadians felt it appropriate to spend up to $100 on a first date. However, this is a drop from the year before when Canadians found $130 more appropriate. So, clearly, Canadians need to make up room somewhere.
Yet, with so many choices available, which ETFs should investors consider buying and holding forever? Three standout Canadian dividend ETFs are CI WisdomTree Canada Quality Dividend Growth Index ETF (TSX:DGRC), BMO Canadian Dividend ETF (TSX:ZDV), and iShares S&P/TSX Composite High Dividend Index ETF (TSX:XEI). These ETFs not only offer consistent dividends but also focus on quality mid-cap stocks, making them ideal for long-term wealth building.
DGRC
DGRC is a smart-beta ETF that focuses on high-quality Canadian dividend stocks with strong growth potential. Unlike traditional dividend ETFs that chase the highest yields, DGRC filters companies based on earnings growth, return on equity, and historical dividend increases. This results in a portfolio of financially sound companies that are more likely to sustain dividend growth over time.
As of writing, DGRC trades at $40.19, with a year-to-date return of 2.72% and a one-year return of 15.68%. Its top holdings include all major players in their respective industries. The ETF has a net asset value (NAV) of $851.7 million and a management expense ratio (MER) of just 0.23%. Thus making it one of the most cost-effective dividend ETFs in Canada.
ZDV
ZDV is a yield-focused ETF that provides exposure to high-dividend-paying stocks across various sectors. Unlike DGRC, which emphasizes growth, ZDV prioritizes companies with above-average dividend yields and a history of stability. This makes it particularly attractive for retirees or income-focused investors looking for monthly payouts.
Currently trading at $22.58, ZDV has a year-to-date return of 2.87% and a distribution yield of 3.89%, significantly higher than DGRC’s 2.12%. The ETF holds 51 securities, with top holdings in the largest market caps on the TSX. With a management expense ratio of 0.39%, ZDV is slightly more expensive than DGRC but offers a higher payout, making it an excellent choice for those prioritizing income over growth.
XEI
Finally, XEI is designed to mirror the performance of the S&P/TSX Composite High Dividend Index. This consists of some of the highest-yielding stocks in Canada. This ETF is particularly well-known for its strong exposure to the energy and financial sectors, which have historically been core pillars of the Canadian economy.
As of writing, XEI trades at $27.31 and has a 5.56% distribution yield. The highest of the three ETFs in this list. Its year-to-date NAV return is 10.69%, showing strong recent performance. The top holdings include major energy producers. With a NAV of $1.7 billion, XEI is the largest ETF among the three, offering solid diversification and a reliable income stream.
A lasting relationship
One of the best advantages of holding dividend ETFs in a TFSA is the tax-free growth. In a non-registered account, dividends would be subject to taxation, reducing overall returns. However, in a TFSA, all dividends, capital gains, and distributions are completely tax-free, allowing compounding to work more effectively over time.
And the best part? These ETFs require little maintenance. Since they automatically diversify across multiple high-quality stocks, investors don’t need to rebalance portfolios constantly. Plus, the low fees, especially DGRC at 0.23%, mean more money stays in your pocket.
If you’re looking for long-term, passive income generation, these three ETFs offer a compelling mix of growth, stability, and yield. DGRC is a low-cost, quality growth option. ZDV provides steady, high-yield dividends, and XEI offers the best yield and largest diversification among high-dividend Canadian stocks.