Hedging Bets: Why the BMO DJI CAD Hedged ETF Offers Stable Dividends in a Volatile Market

The Canadian equity market faces a confluence of challenges: lingering uncertainty over U.S. Federal Reserve rate decisions, heightened geopolitical risks, and volatile currency movements. In this environment, investors seeking stable income and exposure to U.S. equities without foreign exchange risk are turning to hedged ETFs. Among these, the BMO DJI CAD Hedged ETF (ZDJ.TO) stands out. With its recent Q2 2025 dividend declaration of CAD 0.21—yielding 1.31% as of June 20, 2025—the ETF offers a compelling blend of dividend stability, hedged exposure to the Dow Jones Industrial Average (DJIA), and a defensive sector tilt. Here's why it deserves a place in Canadian portfolios.

The Case for Hedged Exposure: Currency Risk Mitigation

The BMO DJI CAD Hedged ETF provides exposure to the 30 blue-chip companies in the Dow Jones Industrial Average while hedging against U.S. dollar (USD) fluctuations. This hedging mechanism is critical for Canadian investors: as the Bank of Canada and Federal Reserve navigate divergent monetary policies, currency volatility has surged. A would reveal that unhedged USD investments have faced significant headwinds. By contrast, ZDJ's hedged structure ensures that gains (or losses) are purely tied to the DJIA's performance, shielding investors from unwelcome currency swings.

Dividend Stability Amid Market Turbulence

The ETF's dividend declaration of CAD 0.21 for Q2 2025 marks the third consecutive quarter of consistent payouts at this level, following a minor adjustment in late 2024. With a forward yield of 1.31%, ZDJ's dividend is modest but reliable. While this yield trails the 1.5%+ seen in some utility-focused ETFs, it outperforms BMO's other hedged offerings, such as the S&P 500 hedged ETF (ZDB.TO), which yields 1.1%, and the Nasdaq 100 hedged ETF (ZBI.TO), at just 0.7%.

A Defensive Sector Tilt for Challenging Markets

The DJIA's sector composition is a key differentiator. Unlike the Nasdaq 100, which is dominated by technology and growth stocks, or the S&P 500, which includes a mix of sectors, the DJIA leans heavily into defensive industries. As of June 2025, the ETF's portfolio is skewed toward healthcare (23%), consumer staples (18%), and industrials (17%), sectors that historically perform better in economic slowdowns. This tilt aligns with the current market's preference for stability over speculative growth.

Contrasting with Peers: Why ZDJ's Edge Matters

Consider the trade-offs with BMO's other hedged ETFs:
- ZDB (S&P 500 Hedged): Offers broader exposure but carries higher volatility due to its inclusion of cyclical sectors like financials and energy.
- ZBI (Nasdaq 100 Hedged): A growth-focused basket with a tech-heavy tilt, making it riskier during rate hikes and economic uncertainty.
ZDJ's defensive tilt and dividend consistency make it a safer harbor in turbulent markets.

Strategic Portfolio Considerations

Investors seeking to balance income generation with capital preservation should allocate a portion of their equity exposure to ZDJ. Its hedged structure mitigates USD/CAD exchange risk, while its dividend yield and sector composition offer insulation against rate hikes and economic softness. For retirees or income-focused investors, this ETF complements core Canadian holdings and reduces reliance on domestic equities, which are often tied to commodity cycles.

Risks and Caveats

No investment is without risk. The DJIA's heavy weighting in legacy industrials and healthcare may underperform in a robust growth environment. Additionally, hedging costs can erode returns during periods of CAD weakness, though this is offset by reduced volatility. Investors should monitor the ETF's expense ratio (0.25%) and compare it to alternatives.

Final Verdict

In a market characterized by rate uncertainty and currency volatility, the BMO DJI CAD Hedged ETF (ZDJ.TO) emerges as a pragmatic choice. Its blend of dividend stability, hedged USD exposure, and defensive sector allocation positions it well for investors prioritizing income and risk mitigation. While not a high-yield play, ZDJ offers the ballast needed in portfolios during uncertain times. For Canadian investors, this ETF is not just an option—it's a strategic imperative.