Finding a high-performance dividend ETF

iShares offering focuses on quality

Back in the 1990s, hardly anyone had heard of ETFs. Mutual funds were far and away the most popular choice for investors who preferred safety in numbers over owning individual stocks.

Despite some years of net redemptions, mutual funds are still the leaders in terms of assets under management (AUM), at $2.53 trillion. That’s because they are the core investments for most employer pension plans.

But ETFs continue to grow at a rapid rate. According to Investment Executive, there are about 1,700 trading in Canada, with an estimated 1.4 new ones launching every day. AUM is now $713 billion.

It’s easy to understand why. Most ETFs are highly transparent, have low management fees, and are easy to trade. Some brokers even offer free ETF trades.

The main problem is what to buy. ETFs come in a variety of flavours. The core ones are based on the performance of major indexes like the S&P 500. Then there are sector ETFs, which specialize in specific areas of the economy, such as technology or utilities. There are geographic ETFs that allow you to invest in continents like Europe or countries such as Japan. There are covered call ETFs, which enhance income at the expense of capital gains potential. There are cash-type ETFs, leveraged ETFs, and on it goes.

Plus, there is the vast U.S.-based ETF market, which currently consists of about 4,800 funds, which hold about $10 trillion in assets.

By keeping a close watch on ETF trading patterns, investors can assess what segments of the market are performing best at a given time. Right now, one of them is green energy, despite the fact that Donald Trump has done everything in his power to squelch the green revolution. He has been especially critical of wind and solar power and has used executive orders to withdraw subsidies and stop new projects.

Other top performers right now include energy-based ETFs and those that focus on Canadian banks.

Investors seeking a broader focus should look at the large number of dividend ETFs currently available. Most major ETF providers offer at least one dividend fund, and many have several choices. These funds usually invest in blue-chip stocks and tend to outperform during bear market conditions.

The problem in selecting a dividend fund is the small size of Canada’s stock market and the relative shortage of quality dividend payers. As a result, most dividend ETFs hold similar securities. The differences are usually in the portfolio asset mix and timing.

That makes it difficult to sort through the clutter but here is one dividend fund that is often overlooked and worth your consideration.

iShares dividend ETF focuses on quality

iShares Core MSCI Canadian Quality Dividend Index ETF (TSX: XDIV) is designed to replicate the performance of the MSCI Canada High Dividend Yield 10% Security Capped Index, net of expenses. It focuses on securities with strong overall financials including above average dividend yields, strong balance sheets, and less volatile earnings. The fund was launched in July 2017 and has $5.2 billion in assets under management. It has a low MER of 0.11%.

Performance has been very strong. The fund gained 40.85% in the year ending May 31 and was showing a 5-year average annual compound rate of return to that point of 17.98%. I was especially impressed by the fact the fund made a small profit in 2022, which was a downer for most of the stock market.

Royal Bank and TD Bank dominate the portfolio, each with 9.32% of assets under management. Other large positions are in Sun Life and Manulife (16.9% between them) and energy giants Canadian Natural Resources and Suncor (16.76%). About 46% of the portfolio is in financials and 30% in energy.

The current monthly payment is $0.119 per unit ($1.428 per year) for a forward yield of 3.3% at the current price. It should be noted that the distribution rate is usually adjusted every three months, so that payout is not guaranteed.

The fund is vulnerable mainly to market risk. These are leading companies in their fields but the heavy exposure to financials and energy would have a significant negative impact if one or both sector were hit.

Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website.

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Notes and Disclaimer

Content © 2026 by Gordon Pape Enterprises. All rights reserved. Reprinted with permission. The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.

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