What's Canada's Version of SCHD?

When it comes to dividend growth ETFs, most people agree. The Schwab U.S. Dividend ETF (NYSE:SCHD) is the ticket.

I can see why. It’s stuffed with the kinds of stocks we like best around here — boring dividend payers, excellent businesses that have a demonstrated record of paying increasing dividends over time. The ETF also looks at other factors when choosing underlying stocks, including strong returns on equity, and placing an emphasis on large, relatively safe stocks.

Plus, as I’ll get into a little later, it has delivered solid returns over the long-term.

There are thousands of SCHD fans, including at least one Twitter account that pretty much exclusively posts about it. His name is Craig, and the man eats, sleeps, and breathes SCHD. He is awesome.

In fact, there’s really only one thing that stops me from making SCHD a part of my portfolio. It sells too often. It punts perfectly good stocks out of the portfolio each year as it rebalances, and I don’t care for that. I want it to hold winners forever. To remedy this, I simply use the ETF (and its sister ETF, SCHY, which tracks international stocks with similar characteristics) as an idea generation tool. Most of the stocks in the American or international part of my portfolio are also held by one of those ETFs.

So let’s take a closer look, starting with just how good SCHD’s long-term return has been. We’ll finish up with a few ideas on a Canadian-equivalent fund.

Just how well has SCHD done, anyway?

One of the reasons why so many American investors (and many Canadians, too) put their capital into SCHD is because it has a pretty solid record of delivering nice returns.

Since inception (which was February, 2011), SCHD has returned just over 13% per year, if you include reinvested dividends. Returns are also solid pretty much no matter which period you look at.

Despite the fund delivering quite excellent returns, it’s just not good enough for some people. A common criticism is that SCHD has underperformed the S&P 500 over some arbitrary timeframe, like the last five years. SCHD defenders are quick to point out that U.S. market returns have largely been driven by about 10 technology stocks (especially lately), and these names will eventually peter out.

This defense sure looks good thus far in 2025. As I type this, the S&P 500 is down about 4.3% year-to-date. SCHD is up about 1.7%. And that doesn’t include dividends, which is where SCHD really shines.

Over the last five years, SCHD has raised its dividend by 11.6% annually. Combine that with the fund’s current yield — just under 4% currently — and that’s a really nice combination. It translates into nearly a 7% return on cost for those who were buying five years ago. That’s a nice result.

It’s little wonder why the ETF has gotten so popular. Total returns are good, dividend growth is there, and the combination of the two make it a perfect retire-off-the-dividends vehicle. But it also comes with a couple of major disadvantages for Canadian investors. Firstly, it introduces a currency risk into one’s portfolio. If the USD tanks versus the CAD going forward, returns for Canadian investors will suffer. And secondly, collecting U.S. dividends is less tax advantageous than collecting Canadian dividends.

So let’s see if we can find a Canadian alternative.

Candidate #1: ZLB

A few weeks ago I said that if I were to put all of my investments into one ETF, I’d strongly consider the BMO Low Volatility Canadian Equity ETF (TSX:ZLB).

Why? Because it checks off a lot of boxes that I look for when I’m investing. Specifically, it buys boring, low beta stocks, most of which pay dividends. It has a nice history of dividend growth, increasing the payout from $0.21 to $0.28 per unit from 2019 through 2024.

Long-term returns have been excellent, too. Shares are up 10.88% annually over the last five years, and total returns have been north of 12% annually since the fund’s inception — which was also in 2011.

That’s enough to turn a $10,000 initial investment into something worth about $45,000 today, assuming reinvested dividends. Not bad.

On the downside, the yield — currently about 2.3% — is a little anemic, and I don’t really love the 0.39% management expense ratio.

It also doesn’t get close to replicating SCHD on both the dividend yield or dividend growth side. Dividend growth is less than half of SCHD’s in the last five years, and it offers a much smaller current yield.

I think ZLB is a solid ETF, but it does different things than SCHD. So we’ll look at some other choices.

Candidate #2: ZDV

I’ve long used the BMO Canadian Dividend ETF (TSX:ZDV) as sort of a benchmark for my own portfolio. It’s not an apples-to-apples comparison because I own REITs and this ETF ignores them, but it’s pretty close to the strategy I use.

On the plus side, this ETF offers a yield much closer to SCHD’s. The current payout is 3.7%, and dividends have grown over time. The payout in 2019 was $0.065 per unit each month, while these days it’s $0.07 per unit. That’s an increase of just 8% over six years, or about 1.25% per year. It also pays out once-annual lump sum distributions periodically as well, which I haven’t factored in here.

These are the fund’s current top-10 holdings. Each and every one of them offers higher dividend growth than the underlying fund.

When we go further down the list of the fund’s holdings, we see names like Agnico Eagle Mines which is a 2.6% weighting. It pays a dividend, but the yield is a somewhat paltry 1.5%. In addition, most gold companies don’t have a great dividend growth history.

The fund also has positions in higher growth stocks like Thomson Reuters, (a 2.6% position), Barrick Gold (1.9%), Brookfield Corp (1%), and Franco-Nevada (0.9%), among other low yielders.

In short, it appears to me that ZDV is sacrificing current yield in exchange for dividend growth in the future. That’s not necessarily a bad trade-off to make, but in doing so it has decreased the fund’s current yield.

It also makes the management expense ratio a little more important. Before, the MER of 0.39% was taken from closer to a 5% underlying dividend. That left investors with a 4.6% yield. These days the fund yields a little less, and so the management fee has a sharper bite.

I’ve seen enough. This one isn’t a substitute for SCHD either.

Candidate #3: VDY

The Vanguard FTSE Canadian High Dividend Yield ETF (TSX:VDY) has emerged as one of Canada’s most popular dividend ETFs. It has a very reasonable management fee (0.22%), pays about a 4% dividend yield, and has delivered total returns of about 10% per year since inception. Not bad.

Maybe I should start using VDY as my index. It seems pretty reasonable.

The distribution per unit is also growing at a pretty nice pace. Vanguard is kind enough to break down distributions into dividends, capital gains, return of capital, etc., so we can easily judge the dividend income coming from VDY. In 2013, it was $0.75 per share. In 2024, it was all the way up to $2.157 per share. That’s growth of nearly 200% in 12 years, or about 12% per year. That’s right around the kind of growth that SCHD offers.

VDY is also just fine with taking larger positions in winners. Its top three holdings are Royal Bank (15.6% of the portfolio), TD Bank (9.9%), and Enbridge (8.7%). This is different than SCHD, which only holds a maximum 4% position.

We’re not quite there — VDY doesn’t offer quite as much diversification as SCHD does — but we’re pretty damn close. It’s the closest equivalent to SCHD we’ve seen so far.

Candidate #4: CMVP

The Hamilton Champions Canadian Dividend ETF (TSX:CMVP) has recently emerged as a new dividend ETF in Canada. It is an equal weight portfolio that tracks the Solactive Canada Dividend Elite Champions Index. In short, it’s looking to achieve a 10% dividend growth rate plus offer investors a decent yield. And the selection process looks for companies with at least a six year dividend growth streak. I don’t think it’s a coincidence that 2020 was five years ago. These guys are looking for dividends that stand up to bear markets.

Okay, that’s a good start.

On the negative side, this fund is tiny. It only has $14.3M worth of assets, and I can’t imagine very many shares trade hands each day.

There’s also no management fee through at least 2025, and it pays a monthly distribution of $0.046 per share. That works out to about a 3.7% yield.

Top positions include a surprising amount of gold stocks. The rest of the portfolio is filled with the kinds of companies you’d expect.

This one definitely has some similarities to SCHD, but we’ll remember two things. Firstly, this ETF has no management fee. It’ll have one eventually, and that’ll cut into the yield. And secondly, this one has a lot of exposure to gold. I don’t love that.

Verdict

There is no Canadian version of SCHD. But a couple of ETFs get close, including the Vanguard High Dividend ETF and this new Hamilton ETF. I would probably choose VDY as the closest thing Canada has to SCHD.

Ultimately Canada just doesn’t have the depth that the U.S. market has. These ETFs need to mostly focus on large cap dividend payers, and there’s really only about 100 of those in Canada. The rest are too small.

But just because these ETFs are limited to large-caps doesn’t mean your portfolio has to be.

This is where Canadian Dividend Investing can help. We scour the Canadian market looking for smaller dividend stocks, ones that trade at a low multiple, offer good returns on capital, and, most importantly, offer the kind of yield and dividend growth combination that makes SCHD so powerful.

Large ETFs simply can’t get that kind of exposure. But you can. There are so many high-quality Canadian small-cap dividend payers, under the radar names that would look great in every portfolio. That’s where we shine, plus we also keep you up to date on much larger names.

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