BMO Long Corporate Bond ETF's Steady Dividend in a Rising Rate World: Is 4.73% Yield Sustainable?

In a landscape where rising interest rates have sent shockwaves through fixed-income markets, the BMO Long Corporate Bond Index ETF (ZLC.TO) has carved out a defiant stance. Declaring a consistent CAD 0.06 monthly dividend throughout 2025, the ETF currently offers a 4.73% forward yield—a stark contrast to the cautious retreat of many bond funds. But is this yield sustainable, and what does it mean for investors seeking income in a high-rate environment?

The Case for Yield Sustainability: Stability Amid Volatility

The ETF’s dividend has held firm at CAD 0.06 since early 2024, following a 7.69% cut from its prior CAD 0.065 payout in March . This adjustment, while initially jarring, appears to have stabilized the fund’s payout structure. As of May 2025, the dividend has remained unchanged for 12 consecutive months, even as benchmark Canadian bond yields have risen.

Why the consistency?
- Underlying Coupon Strength: ZLC tracks a long-term corporate bond index, which typically offers higher coupons than government bonds. These fixed income streams provide a buffer against fluctuating rates.
- Duration Management: While long-duration bonds are rate-sensitive, BMO’s indexing strategy likely prioritizes dividend-paying corporate issuers with strong credit profiles, minimizing defaults and ensuring cash flow.
- NAV Resilience: Despite rate hikes, the ETF’s Net Asset Value (NAV) has held between CAD 15.07 and CAD 15.61 since late 2023, avoiding the sharp declines seen in some Treasury-heavy funds.

Fixed-Income Portfolios: Embrace Risk or Retreat?

In a rising rate environment, bond investors face a dilemma:
- Capital Preservation: Long-term bonds face mark-to-market losses as rates climb.
- Income Generation: High-yield corporates like ZLC offer premium payouts but carry credit risk.

ZLC’s 4.73% yield outperforms peers such as the BMO Provincial Bond ETF (3.99%) and the Vanguard Canadian Long-Term Bond ETF (3.96%), making it a standout for income-focused portfolios. However, investors must weigh this against the ETF’s sensitivity to rate shifts.

The Crucial Trade-Off: Yield vs. Capital Volatility

While ZLC’s dividend is robust, its NAV could face pressure if rates continue climbing. The average dividend growth rate of -0.43% over three years hints at past adjustments, but the consistency since 2024 suggests BMO has struck a balance. For investors prioritizing income over capital growth, this trade-off may be acceptable—especially if rates stabilize or ease in the coming years.

Act Now: Why 2025 is the Time to Consider ZLC.TO

• Peer Comparison Advantage: Outyielding government and provincial bond ETFs by 0.7–0.8%, ZLC offers a rare income edge.
• Monthly Distributions: Steady cash flow for retirees or income seekers.
• Rate Cycle Timing: If the Bank of Canada’s hikes have peaked, the ETF’s NAV could stabilize, offering both yield and capital recovery.

Final Analysis: A Calculated Bet on Income

ZLC.TO’s 4.73% yield is no free lunch. Investors must accept potential NAV volatility and the risk of credit downgrades. Yet, in a world where safe bonds offer 3.5% or less, this ETF provides a compelling income premium for those willing to navigate rate uncertainty.

Recommendation: For fixed-income portfolios needing a yield boost, allocate 10–15% to ZLC.TO. Pair it with shorter-duration bonds to hedge against rate risks. The CAD 0.06 dividend—a steadfast beacon in turbulent waters—remains worth the strategic bet.

Invest now while the yield holds, but diversify to mitigate risk.