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Canadian Dividend Investing can be riskier than Exchange Traded Fund investing, but I enjoy it more.

I know that the owners of this site a big fans of index investing and Exchange Traded Fund Investing, whereas I enjoy the risk somewhat in picking stocks myself (through my Questrade trading account) for the most part.  I have a bit of gambler in me, yeah.

I am a big fan of dividend investing as you know, and I think that bank stocks are a great component of any dividend investing portfolio in Canada.  Heck, most mutual funds and index investments and exchange traded funds all have financials as one of the top holdings anyways.

Banks can be a pretty safe investment as they have good yields, are solid, and are considered safer than investing in banks in other countries, like the United States.  The financial sector is the predominant sector in the Toronto Stock Exchange anyway, comprising of 30% o the Toronto Stock Exchange.

I thought I’d highlight some ways to get in on the Canadian bank dividend paying action.

Please take these suggestions and considerations with a grain of salt, I am no means an investing guru! Just opening up discussion, is all 🙂

Here’s a post by the Money Smarts Blog on how to invest in Canadian dividend stocks if you want a primer.

Here are a few that provide good dividend yields:

Bank of Montreal (TSE: BMO)

I personally own this BMO.  The current price is $63.34 (May 2013) and the annual dividend yield (paid out quarterly) is 4.67%.  The P/E ratio is 10.47 which is pretty good.  The value ratio is also decent at 2.19.  They recently increased their dividend from 72 cents per share to 74 cents per share on the most recent payout in April.  I currently own this stock myself.

National Bank (TSE: NA)

National Bank of Canada recently announced  record profits in the second quarter of 2013 and an increased dividend by 5% from 83 cents per share to 87 cents per share .  The current price for NA is $77.02 (May 2013) and the annual dividend yield is 4.52%.  The P/E ratio is 8.22 and the value ratio is 1.82.


Canadian Imperial Bank of Commerce is $80.45 per share (May 2013) and has an annual dividend yield of 4.67%.  The P/E ratio is 10.28 and the value ratio is 2.15, which is slightly better than the Bank of Montreal VR.  $0.94 a share is paid out quarterly and they increased their dividend from $0.92 early last year.

The banks have always been considered a no-brainer investment.

However, this might not be the case any longer.  The performance of bank equities are closely tied to the residential mortgage and consumer credit industry and recently the returns and profits have been lacklustre.  Financial Post and Globe and Mail both recently had articles detailing the beginning of the end of safe investing with the Canadian banks.  Because investors want to see dividend growth on a consistent basis, the Canadian banks have not been providing this very much and thus dividend growth has been stalled.

If you are interested in buying index funds of exchange traded funds to diversify your investment in the financial sector, there are a few exchange traded funds that can be a good option.

BMO S&P/TSX Equal Weight Banks Index ETF (ZEB)

This ETF has similar holdings and weighting on the six large banks in Canada.  However, the management expense ration for this exchange traded fund is 0.62%.  The current price (May 2013) is around $18.75 and the annual dividend payout is 3.44%.  On a monthly basis, the payout is $0.056 per share.

The holdings in ZEB are as follows:

  • Royal Bank of Canada 17.21%
  • Bank of Montreal 16.90%
  • Bank of Nova Scotia 16.78%
  • Toronto Dominion Bank 16.58%
  • National Bank of Canada 16.08%
  • Canadian Imperial Bank of Commerce 15.78%

iShares Dow Jones Canadian Select Dividend Index Fund (XDV)

The current price of the XDV exchange traded fund is $22.60 (May 2013).  The annual dividend yield is 4.16% with a monthly dividend payout of $0.07819 per share.  The management expense ratio for this exchange traded fund is 0.50%.  I currently own this exchange traded fund.  Over 50% of the holdings in this exchange traded fund are in the financial sector.  There are 30 individuals stocks in this exchange traded fund.

The holdings in XDV are as follows:

  • Candian Imperial Bank of Commerce 6.42%
  • Bonterra Energy 6.35%
  • Natioanl Bank of Canada 5.77%
  • TD Bank 5.56%
  • BMO 5.27%
  • Telus 4.95%
  • Royal Bank of Canada 4.5%
  • (okay, you get the point)

I used to be worried about some of Canada’s online banks threatening the major players over the long-term, but my fears have long ago been put to rest.  When you what Scotiabank has done with Tangerine (the old ING Direct) and how RBC simply paid to make Ally disappear, it’s quite clear that if the big financial fish want to, they can gobble up the online-only small fries whenever they wish!

January 2018 Update

My Canadian bank-heavy dividend strategy has paid off well over the past few years since I originally wrote this post!  Canada’s major banks: Royal Bank of Canada (RBC), Scotiabank or Bank of Nova Scotia, Bank of Montreal (BMO), Toronto Dominion Bank (TD), and Canadian Imperial Bank of Commerce (CIBC) continue to reap the rewards of being in a relatively well protected market here in Canada.  I sometimes shake my head at what they get away with in terms of applying fees to everyday banking transactions, but it appears that Canadians’ love of stability and the familiar is enough to keep these banks paying out ever-increasing dividends no matter what.  Barring extreme disruptions from fintech upstarts such as robo advisors, check out our Wealthsimple review if you’re interested, but I’m not sure that I see that on the Horizon.  For one thing, we’re already seeing the major banks come out with their own robo advisor platforms such as RBC InvestEase and BMO Smartfolio in order to take on these new young companies.  All in all, I’m not too worried about disruption in the Canadian banking sector.  The leaders are so entrenched and so protected that they have a massive competitive advantage.  These means only great things for my dividend portfolio moving forward!

Readers, do you have any Canadian dividend paying favourites?

Article comments

Bernadette says:

Hi – Excellent commentary on Canadian Banking stock. I created my own hedge fund primarily focused on this sector several years ago and it has performed very well. To Phil’s comment – the Bissett Canadian Equity Fund and PH&N Dividend Income funds have MER’s of 2% and .99% respectively – and have performed very well. My question is, based on an investment of 10,000 you will pay $246. and $99. annually – you may be better off in a direct investing account like QuestTrade or iTrade and pay $9 bucks per trade. Just a thought – however for someone who does not have the knowledge or time – it may be worth the cost to buy a MF instead. Keep in mind, as your investment increased so too will the MER fee’s you pay. 🙂

DivHut says:

Great story highlighting the Canadian banking sector. As a dividend investor I am always on the lookout for new investment opportnities nad have been looking to add BNS, TD and RY to my dividend portfolio as I only own one bank, WFC. I happen to agree that Canadian banks seem a lot more stable and solid than many of the U.S. banks and have a very friendly dividend policy. Thanks for sharing.

Phil says:

… do you have any Canadian dividend paying favourites? Yep, and several that I own. I too like to stock pick. My wife and I have holdings in 2 mutual funds (low MER, great long term, consistent returns) Bissett Cdn equity, and PH&N Dividend Income funds… Many have told me that I waste my money investing in mutual funds, but if you look at these 2 over time, well the returns are simple and easy… as to dividend stock picks, I’ve had hits and misses as I’ve matured in my picks. A great one was AM, until it’s sole source recently announced they were not renewing… bugger… some past holdings – TMA, SLF, VSN… Some I currently hold CMI, MND, PBH, BAD, WIN, MDA, WEQ, COS, ENB… Its all about your risks, tolerance and future goals. One pick for me may not work for you – Cheers.

AC says:


Do you hold BMO through a brokerage, or did you do participate in a DRiP/SPP?

Young says:

@AC- I hold BMO through Questrade. I don’t participate in a DRiP in this one. I have DRiP in Sunlife and Husky only for now.

Regarding ZEB, for 0.6% MER, might as well own the stocks directly. 🙂

Would like to own all six big banks at some point and run synthetic DRIPs for all of them. If the prices are right, I should be there in another 2 years.

XDV is a good product.

Kyle says:

If you want to buy all six banks I think a pretty good buying opportunity will come up in the next three years with a Canadians housing drop. I was sort of leaning that way, but Nelson’s latest column pushed me over the edge. The dude presents some pretty convincing stuff!

Young says:

@MOA- Wow that’s awesome. Yeah, ZEB doesn’t seem that great. I don’t own in myself.