Seizing Income in Volatility: Why BMO’s US High Dividend Covered Call ETF is a Defensive Darling Now

In a market riddled with uncertainty, income-generating assets have become the cornerstone of resilient portfolios. The BMO US High Dividend Covered Call ETF (ZWH.U.TO) has emerged as a compelling option, offering Canadian investors a blend of steady dividends, hedged exposure, and a tactical covered call strategy. With its latest CAD 0.13 dividend declaration—payable on May 2, 2025—this ETF positions itself as a defensive income powerhouse amid rising rates and economic crosscurrents. Here’s why investors should act now.

The Covered Call Edge: Income with a Safety Net

At its core, ZWH.U.TO employs a covered call strategy, which involves owning a basket of high-dividend US equities while selling call options on them. This dual approach generates two revenue streams: dividends from the underlying stocks and premiums from the sold options. Critically, the strategy also acts as a buffer against downside risk, as the option premiums offset potential declines in the portfolio’s holdings.

The ETF’s focus on sectors like Information Technology, Health Care, and Consumer Staples further anchors its defensive tilt. These sectors are traditionally less sensitive to economic downturns, making them ideal for volatile markets. Combined with the covered call mechanism, this creates a portfolio engineered to deliver income while tempering volatility.

Yield Powerhouse in a Rising Rate World

With central banks globally inching toward tighter monetary policies, income assets are under pressure. Here, ZWH.U.TO shines. Its 6.68% dividend yield (as of May 2025) is a standout in a landscape of dwindling bond returns and equity market uncertainty. The ETF’s dividend consistency is equally compelling: it has paid out every year for the past decade, with the latest CAD 0.13 distribution marking the 12th consecutive monthly payout in 2025.

The yield isn’t just about income—it’s about resilience. As rates rise, the ETF’s focus on high-dividend US stocks (which often outperform in inflationary environments) ensures the portfolio’s cash flows remain robust.

Outperforming Peers: A Battle of Strategy and Yield

To gauge ZWH.U.TO’s value, compare it with two peers: the BMO Covered Call DJIA Hedged to CAD ETF (ZWA.TO) and the BMO Low Volatility US Equity ETF (ZLU-U.TO).

• Yield vs. Volatility Tradeoff:
• ZWH.U.TO’s 6.68% yield dwarfs ZWA.TO’s 3.15% weighted average dividend yield and ZLU-U.TO’s paltry 0.51% dividend yield. For income-focused investors, this gap is decisive.

• While ZLU-U.TO boasts superior risk-adjusted metrics (e.g., a Sharpe Ratio of 2.11), its paltry yield makes it less attractive for those prioritizing cash flow over pure capital preservation.

• Sector Exposure:

• ZWH.U.TO’s tech-heavy portfolio aligns with the US economy’s growth drivers, whereas ZWA.TO’s focus on the Dow Jones Industrial Average—dominated by legacy industrials—may lag in innovation-driven markets.

• Hedged Benefits:

• Both ZWH.U.TO and ZWA.TO hedge USD exposure to CAD, shielding Canadian investors from currency fluctuations. However, ZWH.U.TO’s higher yield and sector diversity make it a more dynamic play.

Hedged for Canadian Investors, Ready for Uncertainty

For Canadians, ZWH.U.TO offers a dual advantage: dividend income in CAD and currency hedging. This eliminates the risk of USD/CAD volatility skewing returns. In a world where geopolitical tensions and interest rate hikes cloud the outlook, this hedged exposure is a critical defensive layer.

The ETF’s expense ratio of 0.72% is moderate compared to active funds and aligns with its index-based strategy. While ZLU-U.TO’s 0.31% is cheaper, the trade-off for income seekers is stark—sacrificing yield for lower fees.

Act Now: Secure the Next Dividend

The next dividend of CAD 0.13 is payable on May 2, 2025, but investors must own shares before the April 29 ex-dividend date to qualify. With the ETF’s NAV at $22.91 USD (as of May 19, 2025), the risk-adjusted entry point is compelling.

Final Call: Income Meets Defense

In a market where volatility is the norm, ZWH.U.TO’s blend of high yield, covered call downside protection, and hedged USD exposure makes it a standout defensive income play. With peer comparisons favoring its yield and sector tilt, and dividend consistency proven over a decade, this ETF is more than a portfolio filler—it’s a strategic anchor for income hunters.

Act before April 29. The next dividend is on the table.

Investors should consult their financial advisor and review the ETF’s prospectus for risk disclosures and fees.