Dividend Stability in Canadian Equities: Assessing the Attractiveness of ETFs Like Global X Inovestor Canadian Equity Index ETF in a Rising Rate Environment

In the evolving landscape of Canadian equities, dividend stability has emerged as a critical factor for income-focused investors, particularly amid rising interest rates. The Global X Inovestor Canadian Equity Index ETF (INOC) has garnered attention for its exposure to large-cap Canadian equities, but its performance during periods of monetary tightening raises questions about its suitability in a high-rate environment. This analysis evaluates INOC's dividend resilience, compares it to sector-specific peers like the iShares Core MSCI Canadian Quality Dividend Index ETF (XDIV) and the Vanguard FTSE Canadian High Dividend Yield Index ETF (VDY), and assesses broader market dynamics shaping dividend strategies.

INOC's Performance Amid Rising Rates: A Mixed Record

The Global X Inovestor Canadian Equity Index ETF (INOC) tracks the Nasdaq Inovestor Canada Index, a diversified basket of large-cap Canadian equities. As of September 2025, INOC has delivered a 3.48% total return over the past year, including dividends, with an average annual return of 8.52% since its inception in 2017Global X Inovestor Canadian Equity Index ETF^[1]. However, its performance during the Bank of Canada's aggressive rate hikes from 2022 to 2023 was uneven. For instance, INOC recorded a -5.59% return in 2022, a year marked by seven consecutive rate increases, but rebounded with a 21.23% gain in 2023 as inflationary pressures easedBank of Canada Interest Rate 1935-2025 | WOWA.ca^[5].

Dividend stability, a key metric for income investors, has shown volatility. INOC's most recent quarterly distribution of $0.074 as of June 2025 represents a 12.12% decline from the prior quarterGlobal X Inovestor Canadian Equity Index ETF^[1]. While the ETF maintains a 12-month trailing yield of 1.69%, this figure lags behind the 4.25% yield of XDIV and the 4.23% yield of VDYiShares Core MSCI Canadian Quality Dividend Index ETF (XDIV.TO)^[2]. The decline in INOC's dividend raises concerns about its ability to sustain payouts during prolonged rate hikes, especially as its portfolio includes sectors like finance and retail trade—industries more sensitive to economic cycles than defensive sectors like utilities or telecoms2025 Individual Investor Survey: Welcome to the age of …^[4].

Sector-Specific Resilience and ETF Comparisons

Canadian equities in sectors such as utilities, telecoms, and real estate investment trusts (REITs) have historically demonstrated stronger dividend resilience during rate hikes. For example, Telus Corp. (8.0% yield) and Fortis Inc. (4.0% yield) have maintained consistent payouts despite rising borrowing costs, supported by stable cash flows and essential service demandiShares Core MSCI Canadian Quality Dividend Index ETF (XDIV.TO)^[2]. This contrasts with INOC's broader exposure, which includes cyclical sectors vulnerable to rate-driven economic slowdowns.

Comparing INOC to XDIV and VDY reveals stark differences in dividend strategies. XDIV, which focuses on high-quality dividend growers, has shown a 12.50% dividend growth rate over the past year, with payouts stabilizing at $0.117 per share in September 2025iShares Core MSCI Canadian Quality Dividend Index ETF (XDIV.TO)^[2]. VDY, emphasizing high-yield stocks, has a 10.66% annualized dividend growth rate and a 3.96% yield as of September 2025Vanguard FTSE Canadian High Dividend Yield Index ETF (VDY.TO)^[3]. Both ETFs outperform INOC in terms of yield and growth, underscoring the importance of sector concentration in dividend resilience.

Investor Sentiment and Market Dynamics

Investor sentiment toward dividend ETFs in 2025 remains cautiously optimistic but fragmented. A recent survey noted that only 35% of investors expect continued equity gains, reflecting wariness about trade tensions and policy shifts2025 Individual Investor Survey: Welcome to the age of …^[4]. For INOC, declining net assets (-1.22% over one month) and a recent dividend cut signal waning confidence among income-focused investorsGlobal X Inovestor Canadian Equity Index ETF^[1]. In contrast, XDIV and VDY have attracted capital due to their focus on sectors less sensitive to rate hikes, such as utilities and telecomsiShares Core MSCI Canadian Quality Dividend Index ETF (XDIV.TO)^[2].

The Bank of Canada's rate trajectory—from 0.25% in March 2022 to a peak of 5.00% by July 2023—has also influenced investor behavior. As rates rose, capital flowed into fixed-income assets, compressing equity yields. However, the subsequent rate cuts in 2024 and 2025 (to 2.75% as of July 2025) have reignited interest in dividend stocks, particularly those with strong balance sheets and consistent payout historiesBank of Canada Interest Rate 1935-2025 | WOWA.ca^[5]. This dynamic favors ETFs like XDIV and VDY, which prioritize quality and yield over broad market exposure.

Conclusion: Balancing Risk and Reward

While INOC offers diversified exposure to Canadian equities, its mixed performance during rate hikes and declining dividend stability make it a less compelling choice for income-focused investors compared to XDIV and VDY. The latter ETFs' sector-specific resilience and higher yields align better with the challenges of a rising rate environment. For investors prioritizing dividend stability, allocating to ETFs with a focus on utilities, telecoms, and REITs—sectors historically less impacted by rate fluctuations—may offer superior risk-adjusted returns.

As the Bank of Canada navigates a neutral policy stance in 2025, the attractiveness of dividend ETFs will hinge on their ability to adapt to macroeconomic shifts. INOC's broad market approach may appeal to growth-oriented investors, but those seeking consistent income should prioritize ETFs with proven track records in high-yield, defensive sectors.