What is your opinion of the iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (CDZ-T)? Was there any particular reason you didn’t include it in your 2024 column about dividend exchange-traded funds. I ask because I’ve owned CDZ for more than a decade, and it appears to be a better performer than a few of the ones you mentioned.
The column you are referring to was published more than a year ago, and I don’t recall the specific reasons I left out CDZ at the time. But here’s what I can tell you about CDZ today.
First, CDZ’s gains have trailed – sometimes badly – other dividend ETFs. For the year ended Dec. 31, CDZ posted a total return, including dividends, of about 18.3 per cent. The five other dividend ETFs discussed in my column had total returns in 2025 ranging from 26 per cent to 33.8 per cent. CDZ’s three- and five-year returns were also at or near the bottom of the pack.
Second, I find CDZ’s methodology inconsistent. BlackRock Inc.’s website says the ETF seeks to replicate the S&P/TSX Canadian Dividend Aristocrats Index, which “screens for large, established Canadian companies that increased ordinary cash dividends every year for at least five consecutive years.”
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But if that’s the case, why is South Bow Corp. (SOBO-T) included in the ETF and one of its largest holdings? The oil pipeline operator was spun off from TC Energy Corp. (TRP) on Oct. 1, 2024, and the company hasn’t raised its dividend in its short existence as an independent company.
Similarly, Bank of Nova Scotia’s (BNS-T) inclusion in CDZ is puzzling. From the third quarter of 2023 through the second quarter of 2025 − that’s eight quarters in total – Scotiabank paid the same quarterly dividend of $1.06 a share. What’s more, Scotiabank had the worst total return of the Big Five banks over the past five years.
Another drawback is CDZ’s relatively high management expense ratio of 0.66 per cent, which is roughly double the MER of the other dividend ETFs discussed in the column.
I’m not necessarily suggesting you should dump CDZ and buy a different dividend ETF. I don’t know how big your position is, what type of account you hold it in or whether selling it would trigger a capital gain. Also, the above returns are backward looking, and for all anyone knows CDZ could be a solid performer this year.
But the ETF’s underperformance over the past five years, and its confusing methodology, doesn’t make me want to rush out and buy it when there are so many other options out there.
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Do I still get the dividend tax credit if I invest in a dividend ETF instead of buying individual dividend stocks?
Yes, as long as the ETF holds Canadian companies, the distribution will almost certainly include income that is eligible for the dividend tax credit (DTC). In many cases, the distribution will also include capital gains and return of capital. ETF companies publish the tax characteristics of their distributions annually, typically following the end of the calendar year.
For example, in 2024 the BMO Canadian Dividend ETF (ZDV-T) distributed 84 cents in cash per unit (7 cents a month), plus a non-cash reinvested distribution of 68.3 cents. (Reinvested distributions typically consist of capital gains that were already plowed back into the fund.) Of the total distribution, about 85 cents was classified as eligible dividends, meaning all of the money received in cash, plus a bit more, was eligible for the DTC.
I read with interest that you purchased “units” of the BMO S&P 500 Index ETF (ZSP-T) for your model dividend portfolio. Could you please share why you purchase the “units” and not the direct ETF.
Let me clear up some confusion. There are two versions of the BMO S&P 500 ETF listed on the Toronto Stock Exchange: ZSP trades in Canadian dollars, and ZSP.U trades in U.S. dollars (hence the “U”). I own the Canadian units, both personally and in the model dividend portfolio.
The word “unit” is simply industry jargon for a small slice of ownership of an ETF or mutual fund. When you invest in a company, on the other hand, these small slices are referred to as shares.
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I’m wondering whether you feel that U.S. dividend stocks have a place in a Canadian’s portfolio. For example, about one-quarter of my tax-free savings account consists of the Schwab U.S. Dividend Equity ETF (SCHD-A). My rationale is that, despite foreign exchange risk and U.S. withholding tax on the dividends, SCHD’s total returns just about match any low-fee Canadian dividend ETF over the long term. I’m wondering what your take is seeing as most of your model portfolio lies on this side of the border.
Yes, U.S. dividend stocks have a place in a Canadian portfolio. The question is whether SCHD is the best way to get your U.S. exposure.
The purpose of diversification is to control risk by investing in companies or sectors that aren’t highly correlated with one another. The main reason the U.S. market outperformed Canada for many years (2025 being a notable exception) was the monster rally in the Magnificent Seven technology stocks, which account for about 34 per cent of the S&P 500 Index.
However, if you scroll down the list of SCHD’s holdings, you’ll find very few technology stocks. Growth-focused stocks aren’t known for paying big dividends – these companies prefer to reinvest their cash internally or buy back shares – which explains why the Schwab ETF doesn’t hold Nvidia Corp. (NVDA), Amazon.com Inc. (AMZN), Alphabet Inc. (GOOG) or any of the other tech giants.
The lack of technology is reflected in SCHD’s subpar returns. For the five years to Dec. 31, SCHD posted an annualized total return, including dividends, of 8.9 per cent. That compares with about 14.4 per cent for the S&P 500.
Now, I’m not saying tech stocks will continue to put up boffo returns. I don’t know; nobody does. But if tech does continue to outperform, SCHD is going to miss out. The corollary is also true: If the artificial-intelligence “bubble” pops, SCHD could benefit from having minimal exposure to the sector. But you’re already getting a lot of non-tech companies in Canada, so in some ways, buying a technology-light U.S. ETF defeats the purpose of investing a portion of your capital south of the border.
For greater exposure to tech, and better diversification, you might consider adding a simple Canadian-listed S&P 500 ETF to your portfolio. That’s what I do personally, and I’ve been pleased with the results. The S&P 500, by the way, also has all the big U.S. dividend payers, such as Johnson & Johnson (JNJ), Walmart Inc. (WMT), Procter & Gamble Co. (PG) and McDonald’s Corp. (MCD). So, you’ll still get your dividend fix.
E-mail your questions to jheinzl@globeandmail.com. I’m not able to respond personally to e-mails but I choose certain questions to answer in my column.