VDY Review 2026: The Best Canadian Dividend ETF?

VDY (Vanguard FTSE Canadian High Dividend Yield Index ETF) is the most-popular Canadian dividend ETF in 2026, with a trailing yield of ~4–5% paid monthly. I have held VDY in my non-registered account since 2021 for the dividend tax credit treatment — here’s the honest review.

At a glance

• Ticker: VDY (TSX)
• MER: 0.22%
• Index tracked: FTSE Canada High Dividend Yield Index
• Holdings: ~50 Canadian dividend stocks
• Currency: CAD (pure Canadian exposure)
• Distributions: Monthly
• Yield: ~4–5%
• Inception: November 2012
• AUM: $4–5 billion as of 2026
• Provider: Vanguard Investments Canada Inc.

What VDY actually holds

VDY’s index selects Canadian stocks paying high dividends and weights them by dividend yield. Top 10 holdings (representing ~60% of VDY) typically include:

• Royal Bank of Canada (RY)
• Toronto-Dominion Bank (TD)
• Bank of Nova Scotia (BNS)
• Bank of Montreal (BMO)
• Canadian Imperial Bank of Commerce (CM)
• Enbridge (ENB)
• TC Energy (TRP)
• BCE
• Manulife (MFC)
• National Bank of Canada (NA)

Sector breakdown:

• Financials (banks, insurers): ~60%
• Energy (pipelines, oil/gas): ~25%
• Communication Services (telecoms): ~10%
• Other (utilities, industrials): ~5%

This is where VDY’s strengths and weaknesses become clear. The high yield comes from concentrated exposure to mature Canadian dividend payers — banks especially.

The big VDY trade-off: yield vs concentration

VDY pays ~4–5% in monthly distributions, far higher than VFV (~1.4%) or XEQT (~1.8%). But this yield comes from concentration in two sectors:

Why banks dominate: Canadian banks have stable, regulated, oligopolistic businesses with reliable 3–5% dividend yields. The FTSE High Dividend Yield Index naturally weights toward them.

Why energy is heavy: Canadian pipelines (Enbridge, TC Energy) pay 6–8% yields. Energy producers rarely qualify due to volatile dividends, but pipelines are stable.

The risk: A banking crisis (2008-style) or oil/gas regulatory shock would hit VDY harder than a diversified ETF.

The benefit: In stable markets, VDY’s yield compounds nicely. Over 10+ year horizons, total return has been ~7–9% annualized — lower than VFV/XEQT but with higher current income.

VDY vs alternatives

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VDY vs XEI

XEI (iShares Core S&P/TSX Composite High Dividend Index ETF) is the closest competitor. Same MER (0.22%), similar yield (4–5%), but holds ~75 stocks (more diversified) and tracks a different index that caps sector concentration.

• VDY: more concentrated (60% banks), highest yield, monthly distributions
• XEI: more diversified (40% banks, 20% utilities, 15% telecoms), slightly lower yield, monthly distributions

For most dividend-focused investors: VDY for maximum yield, XEI for moderate diversification.

VDY vs ZDV

ZDV (BMO Canadian Dividend ETF) is BMO’s competitor at 0.39% MER (more expensive). Tracks Canadian dividend stocks with similar concentration. ZDV has slightly different selection rules but similar overall profile. VDY wins on cost.

VDY vs CDZ

CDZ (S&P/TSX Canadian Dividend Aristocrats Index ETF) tracks Canadian companies that have raised dividends for 5+ consecutive years. MER is 0.66% — significantly higher. CDZ trades quality (consistent dividend growers) for cost. VDY is cheaper; CDZ is more “quality” focused.

VDY vs individual Canadian bank stocks

If you wanted to replicate VDY’s bank-heavy exposure, you could hold equal weights of RBC, TD, Scotia, BMO, CIBC, and National Bank — saving the 0.22% MER. The trade-offs:

• You’d need to rebalance manually (annual at minimum)
• You’d pay 6 separate trading commissions on rebalancing
• You’d need to monitor each bank’s dividend safety
• You’d miss the energy/telecom exposure VDY adds

For most Canadians, the 0.22% MER is worth the simplicity. Owning $50,000 of VDY costs $110/year in MER. Building and rebalancing a 6-bank portfolio takes 2–4 hours per year of your time.

VDY’s tax treatment — why non-registered VDY is tax-efficient

This is VDY’s killer feature for Canadians outside registered accounts.

Eligible Canadian dividends (which VDY’s holdings pay) qualify for the federal Dividend Tax Credit. Effective tax rates on eligible dividends:

Federal tax bracket	Effective tax rate on eligible dividends
Lowest bracket (~$55K)	6–8% (varies by province)
Mid bracket (~$100K)	13–18%
High bracket ($250K+)	28–33%

Compare to interest income (e.g., GIC interest): taxed at full marginal rate (~25–53% depending on bracket).

Example: $10,000 of VDY paying 4.5% = $450/year in dividends. At a 30% marginal tax bracket, the effective tax on those dividends is ~14% = $63 owed. The same $450 in GIC interest would owe ~$135 in tax.

Bottom line: VDY is one of the most tax-efficient income sources for Canadians outside registered accounts.

VDY in different account types

Account type	VDY treatment
TFSA	Tax-free distributions and growth. Best for most
RRSP	Tax-deferred. Lose dividend tax credit but gain RRSP deduction at contribution
FHSA	Tax-free if used for first home
RESP	Tax-deferred for kids’ education
Non-registered	Eligible for dividend tax credit — most tax-efficient outside registered accounts
LIRA	Same as RRSP for tax purposes

For most Canadians: hold VDY in the TFSA first. Once TFSA is maxed, hold in non-registered for the dividend tax credit. Avoid RRSP for VDY specifically (you sacrifice the dividend tax credit).

Real performance: VDY since 2021

For full transparency, my own VDY history:

• First purchase: $5,000 in March 2021 at ~$40/share (in non-registered)
• Followed by: quarterly $1,000 deposits ever since
• Cumulative invested: ~$22,000
• Current value (May 2026): ~$28,000 (capital appreciation only)
• Cumulative distributions received: ~$3,800 (reinvested manually)
• Total return: ~45% over 5 years (excluding compounded reinvestment)

For comparison, my XEQT holdings during the same period returned ~55%. VDY underperformed in capital terms but provided steady monthly income.

Common VDY mistakes

1. Holding VDY in an RRSP and forgetting about the lost dividend tax credit. RRSPs already provide tax deferral; the dividend tax credit goes to waste here. Hold growth ETFs (VFV, XEQT) in RRSPs and dividend ETFs (VDY) in TFSAs or non-registered.

2. Treating VDY’s monthly distributions as “free money” rather than reinvesting. $200/month in distributions left as cash earns nothing. DRIP-reinvested back into VDY compounds at the fund’s total return rate.

3. Owning VDY plus individual Canadian bank stocks. This is double-counting. VDY already has 60% bank exposure. Adding RBC and TD individually further concentrates risk.

4. Buying VDY for “income” while still in accumulation phase. Young investors maximizing growth should prefer broad-market ETFs (XEQT, VFV). VDY’s income-tilt sacrifices total return for current cash flow — not optimal during 30+ year accumulation horizons.

5. Selling VDY during a bank-sector downturn. Bank sectors recover historically. Holding through cycles is the strategy.

Bottom line

VDY is the canonical Canadian dividend ETF in 2026. It’s not the highest-total-return ETF (VFV, XEQT outperform), but it’s the highest-yield-with-tax-efficiency option for Canadians who specifically want:

• Monthly income (4–5% yield)
• Canadian dividend tax credit (in non-registered accounts)
• Bank/telecom/pipeline exposure as a tilt

For long-term growth-focused investors: XEQT or VFV. For income-tilted portfolios or investors in their 50s+ shifting toward income: VDY makes real sense.

Hold it in a TFSA for tax-free monthly income, or in a non-registered account for the eligible-dividend tax credit treatment.

Read next

• Best Canadian Dividend ETFs — VDY vs XEI vs ZDV vs CDZ
• Best Canadian Dividend Stocks — individual stock alternatives
• VFV Review — for US large-cap exposure
• XEQT Review — for global all-cap exposure
• How to buy ETFs in Canada — order placement