2 Canadian ETFs to Buy and Hold Forever in Your TFSA

If you’re looking to make the most of your Tax-Free Savings Account (TFSA), consider the benefits of exchange-traded funds (ETFs) that pay dividends.

Why opt for dividend-paying ETFs in a TFSA? The answer is simple: all the dividends you earn are yours to keep, completely tax-free, and you won’t need to worry about complicated tax filings.

While many high-yield income ETFs might not offer significant share price growth, I’ve found two Vanguard ETFs that provide a nice balance between decent monthly dividends and potential capital appreciation. Here they are!

Canadian dividend stocks

My first pick is the Vanguard FTSE Canadian High Dividend Yield Index ETF (TSX:VDY), a standout among Canada’s dividend ETFs with $2.6 billion in assets under management.

This ETF holds a diverse portfolio of 55 Canadian dividend stocks, heavily weighted towards the financial and energy sectors, which are mainstays of the Canadian market.

As of July 9th, according to Wealthsimple, it offers a 4.8% yield. The ETF last went ex-dividend on June 28th, with a payout of $0.182709 per share on July 8th.

For July, I anticipate the ex-dividend date will be around the 31st, though this has yet to be confirmed by Vanguard. Notably, this ETF distributes dividends monthly, which is a great feature for those looking for regular income.

Additionally, its low management expense ratio (MER) of 0.22% makes VDY an economically sensible choice for investors seeking yield without the higher fees associated with covered call funds or closed-end income trusts.

Canadian REITs

While VDY offers solid exposure to Canadian dividend stocks, it lacks in another significant income-generating sector in Canada’s stock market – Real Estate Investment Trusts (REITs).

These are companies that own, operate, or finance income-generating real estate, providing investors with regular income streams through dividends.

For those looking to balance their portfolio with real estate exposure, pairing VDY with the Vanguard FTSE Canadian Capped REIT Index ETF (TSX) is a sound strategy.

A sensible allocation might be 80% VDY and 20% VRE, depending on your investment goals and risk tolerance.

VRE comes with a management expense ratio (MER) of 0.39% and as of July 9th, according to Wealthsimple, VRE offers a yield of 3.03%, and like VDY, it distributes income on a monthly basis.

The ETF’s portfolio is well-diversified across various real estate sectors, including industrial, office, retail, residential, and even healthcare facilities, making it an excellent complement to the high-dividend yield provided by VDY.