The stock market has been off to a volatile start to 2026. And with valuations already looking sky high for many stocks, it's crucial for investors to look for ways to protect their portfolios in the year ahead.
If you've got a tax-free savings account (TFSA) and want to add some stability and dividend income to it this year, then an excellent exchange-traded fund (ETF) to consider is the Vanguard FTSE Canadian High Dividend Yield Index ETF (TSX:VDY).
This ETF yields 3.6%, which is a very high rate, particularly at a time when valuations are up and yields are low. This year, the fund is up around 1%. While that may not be impressive, it's still a decent performance, especially if your priority is dividend income and capital preservation.
There are 56 stocks in this ETF, with a heavy focus on the financial and energy sectors. Its top three holdings are all iconic Canadian stocks that are known for making reliable dividend payments – Royal Bank of Canada, Toronto-Dominion Bank, and Enbridge. This passively managed fund has an expense ratio of 0.22%, which is fair in relation to other ETFs.
A big bonus for income investors is that it makes payments every month, so there is no need to wait for every quarter to collect a dividend. With added frequency, this can make for a solid income investment to hold in your TFSA as it can bring in a regular stream of cash flow that you can use to re-invest or use for other purposes.
In five years, the Vanguard FTSE Canadian High Dividend Yield Index ETF has been a solid investment, rising by around 86% in value.
