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What are we looking for?

Top-rated Canadian dividend and equity income funds

The Screen

Canadian investors have been drawn to dividend-oriented investments for many years – and for good reason. With over a decade of historically low interest rates and an environment where bonds provided lacklustre yields, the term “search for yield” became a mainstay among investors for whom dividends are their primary go-to. Dividends also became a hot topic during the pandemic when the number of companies that cut dividends reached highs not seen since the global financial crisis of 2008-09.

For Canadian investors, investing in Canadian dividend-paying companies can also help avoid an extra burden that comes from foreign dividend taxes. Additionally, holding Canadian companies with a focus on dividends has certainly paid off in recent years. The Morningstar Canada Dividend Yield Focus Index has yielded an average 4.7 per cent over the past 10 years and today it sits at 5.1 per cent.

That said, my colleague Ian Tam recently wrote about the potential for Canadian companies to cut dividends in 2024. For this reason, investors looking to maintain exposure to higher-dividend-yielding companies, it may be beneficial to consider investing in funds known for their dividend focus. To help provide a starting point, I used Morningstar Direct to screen over 100 Canadian mutual fund and ETFs classified by the Canadian Investment Funds Standards Committee (CIFSC) as Canadian Dividend and Income Equity that meet the following criteria:

  • A Morningstar Medalist Rating of Bronze, Silver or Gold, indicating a forward-looking view of the fund’s ability to outperform its peer group and/or relevant benchmark on a risk-adjusted basis over a full market cycle.
  • A Morningstar Rating (aka “star rating”) of four or five stars. The star rating is an objective look back at a fund’s after-fee, risk-adjusted returns relative to the category to which the fund belongs. Though the measure is backward-looking, Morningstar’s research shows that over time and on aggregate, five-star funds continue to outperform four-star funds, three-star funds etc., after receiving the rating.
  • Morningstar Category – which is defined by the CIFSC – is Canadian Dividend and Equity Income

What we found

Divided-focused funds

Fund NameTickerMER (%)Morningstar Medalist RatingMorningstar Rating OverallTotal Ret YTD Total Ret % Rank Cat YTD Total Ret 1 YrTotal Ret % Rank Cat 1 Yr Total Ret Annlzd 3 Yr Total Ret % Rank Cat 3 Yr Total Ret Annlzd 5 Yr Total Ret % Rank Cat 5 Yr
Dynamic Active Canadian Dividend ETFDXC-T0.84Gold53.92119.60811.451011.522
Horizons Cdn High Dividend ETFHXH-T0.11Gold41.56824.916812.2268.8920
iShares Core MSCI Canadian Qual Div ETFXDIV-T0.11Gold52.43618.381612.4449.806
RBC Canadian Equity Income F0.76Gold41.04894.43789.39438.7527
Dynamic Canadian Dividend Series F1.13Gold53.15399.111012.40510.952
Dynamic Dividend Advantage F1.03Gold42.42615.475910.38259.669
Scotia Canadian Dividend F0.84Gold43.37238.00219.83328.8323
Fidelity Dividend Series F0.91Silver52.53586.204810.132910.324
Manulife Smart Dividend ETFCDIV-T0.28Silver41.37864.827010.2828
PH&N Dividend Income Fund D0.99Silver43.31298.161911.40119.668
RBC Quant Canadian Dividend Leaders ETFRCD-T0.42Silver43.31289.76610.92179.1817
CC&L Equity Income and Growth F1.11Bronze43.95105.89538.34658.1836
CI WisdomTree Canada Quality Div Gr ETFDGRC-T0.23Bronze43.46208.56128.88508.8622
Manulife Fundamental Dividend F1.10Bronze54.3286.944010.01299.3712

Source: Morningstar

Data as of Feb 23rd, 2024

The list is dominated by big players in the Canadian asset manager sector – 50 per cent of funds on the list are distributed by bank-owned asset managers at RBC and Scotiabank. Mutual funds and ETFs are also well represented on the list, as is a wide range of differentiated approaches to dividend investing. iShares Core MSCI Canadian Quality Dividend ETF (XDIV) and CI WisdomTree Canada Quality Dividend Growth ETF (DGRC) both include consideration for quality, while Horizons Canadian High Dividend Index ETF (HXH) focuses on high-dividend payers. Manulife Fundamental Dividend and Fidelity Dividend funds are managed by well-regarded active investment teams.

These funds have struggled year-to-date, which is largely attributed to their average underweight to the top-performing sector – technology.

Note that the management expense ratios listed here are reflective of the fee-based share class. In the table, these shares exclude the cost of advice and are held in fee-based accounts where the adviser charges separately for advice.

This article does not constitute financial advice. Investors are encouraged to conduct their own independent research before purchasing any of the investments listed here.

Danielle LeClair, MFin, is director of manager research, Canada for Morningstar Research Inc.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 22/05/24 3:28pm EDT.

SymbolName% changeLast
Dyn Ishares Active CDN Div ETF
GX Canadian High Div Idx Corp Cls ETF
Ishares Core MSCI CAD Qlty Div ETF
Manulife Smart Dividend ETF
RBC Quant CDN Dividend Leaders ETF
CI Wisdomtree CDN Qlty Div Grth Idx ETF

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