BMO US Put Write ETF: Navigating Income Sustainability in a Rising Rate Landscape

The BMO US Put Write ETF (ZPW.TO) recently declared a quarterly dividend of CAD 0.125 per share, marking a strategic milestone for income-focused investors. With a forward yield of 9.87% as of June 2025, the ETF has emerged as a compelling alternative to traditional fixed-income assets amid rising rates and volatile markets. However, its income sustainability hinges on its unique put-writing strategy, evolving distribution history, and exposure to equity market risks. Let's dissect its appeal, risks, and tactical opportunities.

Dividend Growth: A Steady Ascent

Since its inception, ZPW has prioritized consistent dividends, with a pivotal shift in 2024. From 2020 to 2023, the ETF maintained a flat CAD 0.095 dividend, reflecting its conservative approach. But in early 2024, it increased payouts by 31.58% to CAD 0.125, driven by rising premiums from its put-writing activities. By June 2025, the dividend further edged up to CAD 0.13, with a 9.87% forward yield—a stark contrast to its 2020 yield of just 5.2%.

This trajectory signals confidence in the ETF's strategy, which involves selling put options on U.S. large-cap equities. By collecting premiums from these options, ZPW generates predictable income, even as equity markets fluctuate. The 36% stock allocation (as of May 2025) provides growth exposure, while 64% cash reserves offer liquidity and downside protection.

The Put-Writing Edge: Income Generation Meets Risk Management

ZPW's core strategy is to write out-of-the-money (OTM) put options on stocks like Apple, Microsoft, and Amazon. Here's how it works:
1. Premium Income: ZPW sells put options, receiving upfront premiums. If the stock price stays above the strike price, the ETF keeps the premium.
2. Downside Protection: If the stock falls below the strike price, ZPW must buy it at the agreed price—but this obligation is offset by the cash reserves.

This dual mechanism creates a “win-win” dynamic:
- Bull Markets: Collect premiums and ride equity appreciation.
- Bear Markets: Use cash to purchase undervalued stocks at discounted prices.

Yield Attractiveness vs. Peers: A High-Water Mark

ZPW's 9.87% yield dwarfs traditional equity income funds and bonds. For context:
- Vanguard High Dividend Yield ETF (VYM): ~2.3% yield.
- iShares 20+ Year Treasury Bond ETF (TLT): ~4.1% yield.
- Competitor Put Write ETFs: The WisdomTree CBOE PutWrite Strategy Fund (PUTW) yields ~4.2%, but lacks ZPW's CAD-denominated payouts.

The gap reflects ZPW's high-risk/reward trade-off: it targets higher yields by actively managing equity exposure, unlike passive dividend funds or fixed-income instruments.

Risks: When the Put-Writing Engine Stalls

While ZPW's strategy shines in stable or rising markets, it faces headwinds in two scenarios:
1. Market Crashes: If a large-cap stock plummets below its put strike price, ZPW must buy the shares at a loss, eroding cash reserves. The -4.11% 2022 performance (vs. -6.24% for its benchmark) hints at this risk.
2. Low Volatility: Put premiums shrink in calm markets, squeezing income. If equity volatility (measured by the CBOE Volatility Index, VIX) stays low, dividend growth may stall.

Tactical Opportunity: The June 27 Ex-Date Catalyst

Investors can position for the CAD 0.13 dividend by purchasing shares before the June 27 ex-date. Here's the play:
- Buy Before June 27: Qualify for the dividend, which will be paid on July 3.
- Hold for Long-Term Income: The ETF's 2.85% annualized dividend growth rate (2022–2024) suggests further upside.

Risk Management Tip: Pair ZPW with a low-volatility ETF (e.g., iShares Core S&P 500 Low Volatility ETF) to balance its equity exposure.

Final Analysis: A High-Yield Play for the Aggressive Income Seeker

ZPW's 9.87% yield and put-writing strategy make it a standout option for investors willing to tolerate equity risk for income. Its June 27 ex-date is a timely entry point, but buyers must acknowledge:
- Upside: Steady dividends, potential stock accumulation at discounts during downturns.
- Downside: Cash burn in crashes and reliance on volatile equity markets.

For 70%+ cash reserves, ZPW is a hybrid instrument—part bond, part equity—to consider in a yield-starved world. Proceed with caution, but don't dismiss its income-generating potential.

Investment Recommendation:
- Aggressive Income Investors: Allocate 5–10% of a diversified portfolio to ZPW for yield.
- Conservative Investors: Avoid until equity volatility subsides or yields compress further.

Final Ex-Date Reminder: Buy shares by June 27 to qualify for the CAD 0.13 dividend.