BMO MSCI EAFE ETF: A Steady Income Play in Volatile Markets with July Dividend Catalyst

As global markets grapple with uncertainty—geopolitical tensions, shifting interest rates, and inflationary pressures—investors are increasingly seeking defensive assets that blend income stability with diversified equity exposure. The BMO MSCI EAFE Index ETF (ZEA.TO) emerges as a compelling option, offering a consistent dividend yield of 2.52% as of June 2025, quarterly payouts, and exposure to resilient sectors such as Financials and Health Care. With its next dividend payment scheduled for July 3, 2025, this ETF presents a timely opportunity for income-focused investors.

Dividend Stability Amid Volatility

The ZEA.TO ETF has maintained a consistent quarterly dividend of $0.16 CAD since March 2023, despite broader market turbulence. This stability is underpinned by its passive tracking of the MSCI EAFE Index, which comprises large- and mid-cap equities from 21 developed markets. While there was a 15.8% reduction in the dividend in March . 2023 (from $0.19 to $0.16 CAD), payouts have remained steady since then, reflecting the index's diversified earnings base.

The upcoming July 3, 2025 dividend—marking the ETF's 11th consecutive quarter of stable payouts—serves as a catalyst for income investors. With a forward yield of 2.52%, ZEA.TO outperforms the 10-year Canadian bond yield (currently ~2.3%) and aligns with the average yield of its peer group, including the iShares MSCI EAFE Index ETF (CAD-Hedged) at 2.50% and the Global X MSCI EAFE Index ETF USD at 2.70%.

Sector Exposure: Anchored in Resilient Industries

The ETF's portfolio is heavily weighted toward sectors that historically perform well during economic downturns. As of March 31, 2025, Financials and Health Care accounted for 19.8% and 14.8% of the fund's holdings, respectively. These sectors are strategically positioned to navigate uncertainty:

• Financials: The sector's 20% allocation reflects the stability of large-cap banks and insurers in developed markets, which often benefit from rate hikes and steady demand for services.
• Health Care: With a 15% stake, this sector includes pharmaceutical giants and healthcare providers, which exhibit defensive characteristics due to inelastic demand.

Notably, the ETF's sector weightings closely mirror the MSCI EAFE Index, ensuring minimal tracking error. Other key allocations include Industrials (15.9%) and Consumer Staples (11.6%), further diversifying its income streams.

Currency Exposure: Clarifying the Hedging Debate

A critical nuance for Canadian investors is currency risk. Unlike its hedged counterpart—the BMO MSCI EAFE Hedged to CAD Index ETF (ZDM)—ZEA.TO does not hedge against foreign exchange fluctuations. This means investors are exposed to both the performance of international equities and the CAD's movements against other currencies.

While this introduces volatility, it also offers flexibility. For investors willing to accept currency risk, ZEA.TO provides a pure play on global growth, while ZDM serves as the hedged alternative. In a rising USD environment, ZDM may outperform, but ZEA.TO's unhedged structure could offer better returns if the CAD weakens.

Investment Considerations

Pros:
- Defensive Income: Steady dividends and exposure to recession-resistant sectors.
- Global Diversification: Access to 21 developed markets, reducing reliance on domestic equities.
- Low Cost: As an index ETF, it offers broad exposure with minimal fees.

Risks:
- Currency Fluctuations: CAD-denominated returns may be diluted by a strengthening USD.
- Geopolitical Risks: EAFE markets are vulnerable to trade disputes, energy crises, or regional conflicts.

Recommendation:
ZEA.TO is ideally suited for long-term, income-focused portfolios seeking diversification beyond North America. Investors should:
1. Hold for the July 3 dividend, leveraging the upcoming payout as a near-term income boost.
2. Monitor CAD/USD trends: Consider pairing ZEA.TO with ZDM to balance hedged/unhedged exposure.
3. Rebalance periodically: Adjust allocations based on sector performance and macroeconomic shifts.

Conclusion

The BMO MSCI EAFE Index ETF (ZEA.TO) offers a compelling blend of income stability and diversified international exposure, making it a defensive pillar in volatile markets. While its lack of currency hedging requires careful consideration, the ETF's consistent dividend history and sector allocations to Financials and Health Care position it as a reliable income generator. For investors prioritizing steady payouts and global diversification, ZEA.TO deserves a place in their portfolios—especially ahead of the July 3 dividend.

As always, consult your financial advisor to align these insights with your risk tolerance and investment goals.