Unlocking U.S. Dividend Growth: Currency Strategy and Yield Optimization with Hamilton's SMVP.U

For Canadian investors seeking exposure to U.S. dividend champions, the Hamilton CHAMPIONS U.S. Dividend Index ETF (SMVP.U) offers a compelling case study in balancing currency risk and yield potential. As the U.S. economy navigates a fragile recovery and geopolitical uncertainties, the ETF's USD unhedged structure presents both opportunities and challenges. This analysis explores how SMVP.U leverages its design to optimize income generation while navigating the complexities of cross-border investing.

The Case for U.S. Dividend Exposure

The Solactive United States Dividend Elite Champions Index, which SMVP.U tracks, is a curated basket of blue-chip companies like Caterpillar, Emerson Electric, and Walmart. These firms are defined by decades of consistent dividend growth, with many classified as “Dividend Kings” (50+ years of consecutive increases). As of July 2025, the ETF's 0.77% yield may appear modest, but it reflects a strategic focus on quality over quantity.

Recent U.S. dividend trends have softened due to tariff uncertainty and corporate caution. In Q2 2025, dividend increases fell to $9.8 billion, down 50% from Q1, while cuts declined to $2.3 billion. However, the financial sector has shown resilience, with banks like JPMorgan Chase and Goldman Sachs boosting payouts post-stress tests. Analysts like Howard Silverblatt of S&P Dow Jones Indices predict a rebound in Q3, with 2025 full-year dividends potentially rising 6%.

Currency Strategy: Unhedged vs. Hedged Exposure

SMVP.U's USD unhedged structure exposes investors to the USD/CAD exchange rate, which is a double-edged sword. In 2025, forecasts suggest a mixed outlook:
- Bullish USD scenarios: WalletInvestor projects USD/CAD climbing to 1.410 by year-end, while LongForecast anticipates a gradual rise to 1.451 in 2026. A stronger USD would amplify SMVP.U's returns in CAD terms, effectively boosting both dividend income and capital appreciation.
- Bearish USD scenarios: CoinCodex's 1.32 year-end projection implies a weaker USD, which would erode gains.

Canadian investors must weigh this volatility against the CAD-hedged version (SMVP), which locks in the exchange rate but reduces yield by hedging costs. For example, a 1% currency movement could alter the effective yield by +/- 10 basis points. This makes SMVP.U ideal for investors with a higher risk tolerance or those holding other USD assets to diversify currency exposure.

Yield Optimization and Portfolio Diversification

SMVP.U's equal-weight structure mitigates overexposure to any single sector. Its top holdings span Consumer Staples (21.7%), Industrials (21.7%), and Health Care (10.6%), aligning with defensive sectors that historically maintain dividends during downturns. This diversification, combined with monthly distributions and a 0% management fee until January 2026, enhances its appeal for income-focused investors.

However, the ETF's performance is tied to the broader U.S. equity market. While the S&P 500's 6% dividend growth forecast is encouraging, SMVP.U's equal-weight approach may underperform in a rally driven by tech or growth stocks. Investors should complement it with growth-oriented ETFs to balance risk.

Strategic Considerations for Canadian Investors

1. Currency Risk Mitigation: For portfolios already overweighted in CAD, SMVP.U introduces valuable diversification. A 10% allocation to SMVP.U could hedge against a weaker CAD while capturing U.S. dividend growth.
2. Reinvestment Flexibility: The ETF's DRIP program allows automatic reinvestment of dividends, compounding returns without currency conversion fees.
3. Long-Term Horizon: The ETF's focus on dividend champions aligns with long-term buy-and-hold strategies. Over a decade, the group has delivered ~5–6% annual dividend growth, outpacing the broader market in stability.

Conclusion: A Balanced Approach to Yield and Risk

Hamilton's SMVP.U is not a one-size-fits-all solution but a strategic tool for investors comfortable with currency volatility. Its unhedged structure offers higher yield potential in a strengthening USD environment, while its blue-chip lineup provides a safety net for income. For those prioritizing stability, the CAD-hedged SMVP offers a smoother ride, albeit at a cost.

In a world of economic uncertainty, SMVP.U exemplifies the power of thoughtful currency strategy and sector diversification. As the U.S. dividend landscape stabilizes, Canadian investors who align their portfolios with these principles may find themselves well-positioned for both income and growth.