Some exchange-traded funds (ETFs) are value conserving round for the lengthy haul, particularly if it’s your purpose to let compounding work its magic. On this piece, we’ll examine in on one particular ETF that’s been my go-to for fairly some time. And although there are numerous worthy candidates so as to add to your hands-off passive ETF portfolio, a reputation that retains coming again to is Vanguard FTSE Canadian Excessive Dividend Yield Index ETF (TSX:VDY).
With a yield simply shy of three.3%, the VDY won’t look like all that nice of a high-yield ETF, particularly when you think about a number of the ETFs on the market that incorporate lined requires the added yield enhance.
When you may rating a higher-yielding ETF with a distribution yield effectively north of 4% and even above 5% for those who’re snug paying a barely larger administration expense ratio (MER) for a lined name ETF, why accept a 3.3% yield on an index ETF by Vanguard?
The MER is about as little as it will get for dividend ETFs, at the moment at 0.22%. Past the low MER, although, is the combination of shares beneath the hood. You’re getting a number of the apparent mega-cap dividend payers (and growers) discovered on the TSX Index. And, after all, there’s a whole lot of overlap with a run-of-the-mill TSX Index ETF.
So, why not simply go for a good lower-cost TSX Index ETF?
All of it boils all the way down to the allocation. Within the VDY, you’re getting extra focus on fewer names and extra of a tilt in direction of these mega-cap money cows, the sorts with strong stability sheets and really beneficiant dividends and dividend development. If you’d like extra of what makes the TSX Index so strong (a minimum of in relation to the highest holdings), I’d argue that the marginally larger MER makes the VDY’s distinctive combine (bigger, dividend-heavy) extra value it.
Whereas there’s completely nothing mistaken with taking place the route of a extra conventional indexer by betting on the broad Canadian economic system with the likes of a TSX Index ETF, I discover that there could possibly be higher rewards by tilting in favour of measurement and dividends. In my opinion, concentrating on the highest dividend payers of the TSX is a greater transfer, particularly for those who don’t need to have dividend heavyweights diluted out by a plethora of small positions in low-to-no-yielders or software program corporations which have fallen beneath stress from AI.
After all, a notable exclusion from the VDY is Shopify (TSX:SHOP), a extremely risky and arguably costly (a minimum of in comparison with banks and oil producers!) tech play with a 2.6 beta that doesn’t even pay dividends. After all, for those who’re growth-oriented and need to capitalize on the rise of AI and the agentic commerce growth, excluding Shopify inventory from the combination is likely to be lower than fascinating.
Why the VDY is my go-to over the TSX Index
In my opinion, it makes extra sense to purchase the VDY and buy shares of particular person tech names which can be underrepresented within the TSX Index individually. Certainly, the TSX Index is likely to be broadly diversified throughout Canada’s economic system, however that doesn’t imply you’re getting higher diversification (I feel the TSX Index wants a complement anyway, given the sunshine weight of the tech and staples sectors).
On the finish of the day, the TSX Index and the VDY are each heavy within the financials and vitality sectors.
The VDY simply takes it one other step additional. And, of late, doubling down on Canada’s prime two sectors has been a successful transfer, with the VDY up 44% prior to now 12 months, beating the TSX Index’s 33% acquire and the S&P 500’s 25% acquire. Briefly, buyers would possibly come for the yield, however keep for the TSX-beating capital features potential.
The submit The ETF I Hold Shopping for and Plan to Maintain Eternally â Right here’s Why appeared first on The Motley Idiot Canada.
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* Returns as of June fifteenth, 2026
Extra studying
- The High 3 Canadian ETFs I’m Contemplating for 2026
- 2 Canadian ETFs I’d Transfer Shortly to Add to a TFSA Proper Now
- 1 Canadian Inventory for Development, 1 for Worth, and 1 for Dividends â All Value Shopping for Now
- 1 Good Method to Use a TFSA to Enhance Your Contribution
- 2 Canadian Shares That May Totally Destroy a $100,000 Portfolio
Idiot contributor Joey Frenette has positions in Vanguard Ftse Canadian Excessive Dividend Yield Index ETF. The Motley Idiot has positions in and recommends Shopify. The Motley Idiot has a disclosure coverage.
