CI Morningstar ZXM's Surprise Dividend Boost: Momentum Plays in a Volatile Landscape

The CI Morningstar International Momentum Index ETF (ZXM.TO) has announced a CAD 0.8118 dividend for June 2025, marking a dramatic reversal from its March payout of just CAD 0.0437—a swing of over 1,800%. This sudden surge raises critical questions: Is this distribution a fleeting anomaly, or a signal of renewed confidence in momentum-driven strategies? For investors navigating volatile markets, ZXM's blend of yield allure and tactical exposure to global trends demands scrutiny.

The Yield Surprise: A One-Off or New Normal?

At a current price of CAD 48.27, the June distribution implies an annualized yield of 20.4%, far exceeding the 0.36% forward yield cited earlier in June. This discrepancy underscores the ETF's erratic dividend history: after a 24% rise in December 2024, payouts plummeted by 82.5% in March before rebounding sharply now. While the June dividend is likely a one-time reward from accumulated gains, it creates a compelling entry point for investors willing to tolerate volatility.

The allure lies in the timing: in a market where bond yields hover around 4% and equity dividends average 2%, a temporary 20% yield—even if unsustainable—offers stark contrast. However, investors must weigh this against the ETF's trailing 12-month yield of 0%, reflecting skipped payments in 2024. Prudence dictates viewing this dividend as a tactical opportunity, not a stable income source.

The Momentum Strategy: A Volatility Hedge or Risk Magnifier?

ZXM tracks the Morningstar International Momentum Index, which selects 50–100 stocks based on price momentum over the prior 12 months. This strategy thrives in trending markets, as rising prices feed further gains. In 2025's choppy environment—marked by Fed rate uncertainty and sector rotations—momentum can outperform by capitalizing on short-term trends.

Consider the ETF's performance: its price has risen steadily since November 2014, with a 1-year forecast of CAD 50.62 (4.87% gain) and a 5-year outlook of CAD 62.70. Technical analysis flags ZXM as “highly overbought,” yet its CAD-hedged exposure mitigates currency risks in a dollar-strengthening world.

However, momentum's Achilles' heel is its sensitivity to trend reversals. If markets enter a prolonged sideways phase or a bear market, ZXM's holdings—often concentrated in high-beta sectors—could underperform. Investors must monitor MACD and RSI indicators to gauge momentum's sustainability.

Risks: Overvaluation, Volatility, and Structural Costs

While ZXM's strategy has merits, its risks are pronounced:
1. Valuation Concerns: The ETF's price-to-book ratio of 2.1 exceeds its 5-year average of 1.8, suggesting overvaluation.
2. Dividend Volatility: The inconsistent payouts reflect reliance on capital gains recycling, which may not persist if markets stagnate.
3. Costs: The 0.75% MER is moderate, but brokerage fees and potential premiums/discounts to NAV add drag.

Investment Advice: A High-Risk, High-Reward Play

For aggressive investors, ZXM offers two paths:
1. Short-Term Opportunism: Use the June dividend as a catalyst to buy before the ex-date (June 24), targeting a CAD 47.50–49.00 entry range. Pair this with a stop-loss at CAD 45.00 to limit downside.
2. Long-Term Momentum Ride: Enroll in CI's Distribution Reinvestment Plan (DRIP) to compound gains if the ETF's 5-year forecast materializes.

Avoid this ETF if:
- You prioritize steady income (opt for bonds or dividend stalwarts like Canada's TSX Utilities Index instead).
- You cannot stomach 10–15% swings in NAV, common in momentum-driven vehicles.

Conclusion: A Momentum Gamble Worth Watching

CI Morningstar ZXM's CAD 0.8118 dividend is both a reward and a warning. While it offers a fleeting yield advantage, its success hinges on the persistence of global momentum trends—a bet best made with discipline and hedging. For those willing to endure volatility, ZXM's CAD 48.27 price and 2025 forecasts present a compelling, albeit risky, avenue in a yield-starved world.

Final Note: Monitor ZXM's July dividend announcement closely. A repeat of this June's payout would signal a new paradigm; a return to penny dividends would mark this as a one-off blip.

Disclosure: The analysis assumes no position in ZXM.TO. Consult your financial advisor before acting on this advice.