Love Dividend ETFs? 3 Favourites for Outsized Passive Income in 2026

2026-02-26 21:00:00 ET

Canadian dividend ETFs offer a reliable way to generate steady income amid economic uncertainties in 2026. With President Trump’s policies influencing global markets, these funds provide stability through proven payers.

Here are three top options I think investors ought to consider right now in this realm.

iShares S&P/TSX Composite High Dividend Index ETF

The iShares S&P/TSX Composite High Dividend Index ETF ( TSX:XEI ) is an excellent option for those seeking consistent monthly payouts from Canada’s dividend aristocrats.

This ETF tracks the S&P/TSX Composite High Dividend Index , holding 75 stocks across the large-cap blue-chip energy and commodities sector, among others. With plenty of top-tier (and high-yield) blue-chip stocks in this ETF, investors gain not only defensive exposure to the market, but plenty of income opportunities as well.

Impressively, this ETF’s 12-month trailing yield clocks in at 4.2%, bolstered by a rock-bottom expense ratio of 0.22% and $3 billion in assets under management. Those metrics ensure plenty of liquidity and efficiency over time. Notably, this is an ETF with an excellent long-term performance track record (as shown above). Those looking for consistent passive income can gain diversified exposure to the markets via an ETF like this – that’s a preferential option for many, no doubt.

Vanguard FTSE Canadian High Dividend Yield Index ETF

With a greater emphasis on financials and utilities (as well as providing exposure to the energy sector), the Vanguard FTSE Canadian High Dividend Yield Index ETF ( TSX:VDY ) is another great option for investors to consider.

With a nearly identical expense ratio and some similar exposure (though to different sectors), I think this ETF’s breadth and resilient cash flow profile stemming from its portfolio holdings is impressive. Indeed, with a return of more than 11% over the past decade, investors have been paid not only a dividend yield around 4%, but also plenty of capital appreciation over time.

With a price-earnings ratio under 15 times for this ETF’s holdings, I think investors looking to create their own bond-like passive income from equities have a great option to choose from in VDY.

BMO Canadian High Dividend Covered Call ETF

I’m typically not a fan of covered call ETFs (these funds cap upside on the capital appreciation front, but provide greater income in the short term if the market stays flat or heads lower). Thus, for those more bearish on current market conditions, the BMO Canadian High Dividend Covered Call ETF ( TSX:ZWC ) could be an option to consider.

Supercharging yields through covered calls on blue-chip Canadian dividend stocks in stable sectors like financials and telecoms, this ETF targets 10% annual cash flow with monthly distributions. Yet, ZWC also offers a net yield over 5%, partly offset by a higher expense ratio around 0.7%.

The strategy’s option premiums add downside protection, ideal as volatility lingers from U.S. trade shifts. For those looking for fundamental value and diversified exposure to dividend stocks (with some call premium upside), this is a great pick.

The post Love Dividend ETFs? 3 Favourites for Outsized Passive Income in 2026 appeared first on The Motley Fool Canada .

Fool contributor Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

2026