Vanguard FTSE Canadian High Dividend Yield Index ETF
- Morningstar Medalist Rating: Neutral
- Morningstar Rating: ★★★★★
- Morningstar Category: Canadian Dividend & Income Equity
- MER: 0.22%
Vanguard FTSE Canadian High Dividend Yield Index ETF VDY follows an effective process for delivering yield, but applying it to the Canadian market introduces a concerning amount of stock- and sector-specific risk.
The fund tracks the FTSE Canada High Dividend Yield Index. It starts with a wide universe of Canadian dividend-paying stocks, excluding REITs, and ranks them by their expected dividend yield over the next 12 months. The index selects those that represent the higher-yielding half and weights them by market capitalization. High yields can stem from stocks with poor prospects and depressed prices, which may expose this portfolio to additional risk.
The index weights selected stocks by their float-adjusted market cap, which is different from many dividend-oriented peers who weight by dividends or yield. This approach places greater emphasis on larger firms that are more likely to continue paying dividends, which should help control risk and keep turnover in check.
This process isn’t inherently flawed, but it fails to provide diversification in Canada’s uniquely concentrated market. Applied to other regions, like the US and broad foreign markets, it provides a diversified portfolio of quality dividend-payers. Here, the 10 largest names represent 67% of assets, while the financial and energy sectors jointly accounted for about 82% of the portfolio as of June 2025. Major Canadian banks are usually among the fund’s top holdings, with financials companies regularly accounting for more than half of fund assets.
While poorly diversified, the fund has outperformed the Morningstar Canada Index thanks to strong performance in a select few stocks. It beat the index by 37 basis points annualized and the dividend and income equity Morningstar Category average by about 2 percentage points annualized from its launch in November 2012 through July 2025, with mildly higher volatility.
