Why XDIV Is a Top ETF for Income Investors: A Comprehensive Analysis

Are you an income investor searching for a reliable ETF that delivers stable dividends and tax efficiency? Look no further than the iShares Core MSCI Canadian Quality Dividend Index ETF (XDIV). In this post, we’ll explore why XDIV stands out as a top choice, breaking down its key strengths, comparing it to other popular ETFs, and addressing its potential drawbacks.

Note: All data and comparisons are based on information available as of May 2025.

What Is XDIV?

XDIV is an ETF designed to track the MSCI Canada High Dividend Yield 10% Security Capped Index. This index targets Canadian companies with high dividend yields, sustainable payout ratios, and robust financial health. Launched in June 2017 and managed by BlackRock Asset Management Canada, XDIV trades on the Toronto Stock Exchange (TSX: XDIV). Its goal? To provide investors with regular monthly income and long-term growth—perfect for retirees or anyone building a passive income stream.

Why XDIV Shines for Income Investors

1. Competitive Dividend Yield

XDIV offers an impressive 4.5% dividend yield, paid monthly, making it a reliable source of cash flow. Compared to broad-market Canadian ETFs, this yield is notably higher, and it holds its own against other dividend-focused ETFs.

• XDIV: ~4.5%

• VDY: ~4.2–4.5%

• ZDV: ~4.0–4.3%

• XDV: ~3.8–4.0%

The monthly payouts give XDIV an edge for investors needing consistent income.

2. Rock-Bottom Fees

With a management expense ratio (MER) of just 0.12%, XDIV is one of the most cost-effective dividend ETFs in Canada. Lower fees mean more of your money stays invested.

• XDIV: 0.12%

• VDY: 0.22%

• ZDV: 0.38%

• XDV: 0.55%

For a $500,000 investment, XDIV’s annual fee is ~$600, versus $2,750 for XDV—a difference that compounds significantly over time.

3. Quality Over Quantity

XDIV’s index filters for companies with high yields, sustainable earnings, and strong balance sheets, avoiding “dividend traps.” Its portfolio is lean, holding 17–25 stocks, and features blue-chip names like:

• Enbridge (ENB)

• Toronto-Dominion Bank (TD)

• Suncor Energy (SU)

• Royal Bank of Canada (RY)

This focus on “steady-eddy” payers reduces risk and ensures dividend reliability.

4. Tax Advantages

Thanks to the Canadian Dividend Tax Credit, XDIV’s eligible dividends are taxed at a lower rate than interest or foreign dividends. For a retiree in Ontario with $50,000 income, the tax rate on XDIV’s dividends could be 0–10%, versus 20–30% for bond ETF interest. Held in a TFSA, it’s even better—tax-free compounding all the way.

5. Diversification With a Twist

Though concentrated, XDIV diversifies across key sectors:

• Financials: ~50%

• Energy: ~20%

• Utilities/Telecom: ~10–15%

It’s less financial-heavy than VDY (60%) or XDV (50%+), softening sector-specific risks. However, it skips tech and materials, prioritizing income stability over growth.

6. Steady Performance

XDIV’s 10.7% annualized total return over the past five years trails the TSX Composite slightly but shines among peers when dividends are reinvested:

• VDY: ~10–11%

• ZDV: ~9–10%

• XDV: ~8–9%

Its blend of income and modest growth makes it a dependable pick.

7. High Liquidity

With $2.26 billion in assets under management (AUM), XDIV offers tight bid-ask spreads and easy trading:

• VDY: ~$2.5 billion

• ZDV: ~$1.8 billion

• XDV: ~$1 billion

This scale ensures flexibility for investors of all sizes.

Where XDIV Falls Short

No investment is perfect. Here are XDIV’s potential drawbacks:

• Concentration Risk: With just 17–25 holdings, it’s less diversified than ZDV (52 stocks) or VDY (40–50). Its quality focus offsets this, but it’s worth noting.

• Sector Bias: ~70% in financials and energy could lag in tech-driven markets. Pairing it with a global ETF can balance this.

• Limited Dividend Growth: XDIV prioritizes yield over growth, unlike ZDV. If rising income is your goal, other options might suit better.

XDIV at a Glance

Here’s a quick summary of XDIV’s key features:

Feature	Details
Dividend Yield	~4.5%, paid monthly
MER	0.12%
Holdings	17–25 quality Canadian stocks
Sector Allocation	Financials (50%), Energy (20%), Utilities/Telecom (~10–15%)
Total Return	~10.7% annualized (past 5 years)
Tax Efficiency	High (eligible dividends)
AUM	~$2.26 billion
Liquidity	High

Final Thoughts

XDIV is a powerhouse for income investors, blending a high yield, low costs, tax efficiency, and a quality-driven portfolio. It outshines VDY, ZDV, and XDV in cost efficiency and holds its own in performance, with a defensive edge for the risk-averse. While its concentration and sector tilt require consideration, its strengths make it a compelling choice in Canada’s ETF market.

Ready to boost your income portfolio? XDIV might be the fit you’re looking for. Consult a financial advisor to see if it aligns with your goals.

Disclaimer: This post is for informational purposes only and not financial advice. Always seek professional guidance before investing.