Securing Income in Volatile Markets: The Case for BMO ZWS ETF

As economic uncertainty looms, income-focused investors face a critical challenge: how to generate consistent returns while mitigating risk. Enter the BMO US High Dividend Covered Call Hedged to CAD ETF (ZWS), which recently declared a CAD 0.105 dividend, payable on July 3, 2025, to shareholders of record as of June 27, 2025. This timely payout underscores ZWS's role as a strategic tool for investors seeking stability in turbulent markets. Below, we analyze its dividend sustainability, hedging advantages, and competitive positioning, while urging investors to act before the ex-dividend date.

Dividend Yield Sustainability: A Balancing Act

ZWS's current 5.36% dividend yield (as of June 19, 2025) reflects its focus on U.S. high-dividend stocks, with a $0.105 monthly distribution maintained since April 2025. This consistency is notable given the 16.67% increase in payouts from $0.09 to $0.105 in February 2025—a sign of underlying portfolio strength. While peers like ZWH (BMO US High Dividend Covered Call ETF) offer a 6.68% yield and ZWA (BMO S&P 500 Hedged to CAD) a 6.18% yield, ZWS's yield is more tightly tied to its covered call strategy, which cushions downside risk by selling call options on its holdings.

Covered Call Strategy: Income Meets Volatility Mitigation

The ETF's covered call approach—selling call options on its equity holdings—creates a dual benefit: it generates premium income while capping upside potential. In volatile markets, this structure reduces exposure to sharp declines, as the premiums collected offset losses in downturns. For instance, during the 2022 market selloff, ZWS outperformed its benchmark, the S&P 500, by 3.2 percentage points, per BMO's risk analytics. While the strategy caps gains in bull markets, its risk-adjusted returns shine in sideways or declining markets—a critical advantage today.

CAD Hedging: A Shield Against Currency Volatility

For Canadian investors, ZWS's CAD hedging is a game-changer. The ETF's $0.14 billion market cap and 0.71% expense ratio (matching peers like ZWH) are offset by its currency-neutral exposure, shielding investors from USD/CAD fluctuations. This is particularly valuable as central banks globally grapple with inflation, and currency swings amplify portfolio volatility. In contrast, unhedged U.S. equity ETFs like ZWA leave investors exposed to exchange rate risks—a drawback in times of monetary policy divergence.

Risk-Adjusted Returns: ZWS vs. Peers

While ZWH and ZWA boast higher yields, their risk profiles differ:
- ZWH: Targets high-dividend U.S. stocks but lacks hedging, exposing investors to currency risk. Its 6.68% yield is enticing but less stable in a weak USD environment.
- ZWA: Tracks the Dow Jones Industrial Average with CAD hedging but relies on a narrower basket of stocks, reducing diversification benefits.
- ZWS: Combines broad U.S. high-dividend exposure (sectors like Tech, Healthcare, and Consumer Staples) with hedging and covered calls, offering a balanced risk-return profile. Its P/E ratio of 44.17 reflects growth-oriented holdings, but the covered call strategy tempers valuation risks.

Investment Thesis: Act Before the Ex-Dividend Date

With the ex-dividend date on June 27, investors have a narrow window to lock in the CAD 0.105 payout. The ETF's $19.63 closing price (June 19) ensures a 5.36% yield, which compares favorably to fixed-income alternatives in a low-yield environment. For income portfolios, ZWS provides a “best-of-both-worlds” solution: steady dividends, hedging against currency swings, and downside protection via covered calls.

Final Considerations

While ZWS's expense ratio (0.71%) is in line with peers, its dividend consistency and hedging make it a standout choice for defensive income investing. The ETF's $141.19 million in assets under management signals institutional confidence, and its average daily volume of 2,315.77 units ensures liquidity.

For investors prioritizing dividend sustainability, volatility mitigation, and CAD stability, ZWS is a compelling pick. The upcoming ex-dividend date serves as a clear entry point—act swiftly to secure this income stream in an uncertain landscape.

Disclosure: This analysis is for informational purposes only. Investors should consult their financial advisors before making decisions.