ZLB.TO: A Steady Hand in Rocky Markets – The Case for Canada's Low-Volatility Dividend Machine

The BMO Low Volatility Canadian Equity ETF (ZLB.TO) has once again underscored its appeal to income-focused investors, declaring a CAD 0.28 dividend for June 2025. This marks the 10th consecutive quarter of consistent payouts at this level, with no cuts since March 2023. For investors seeking stable, low-volatility returns in an era of geopolitical tension and economic uncertainty, ZLB.TO's blend of dividend reliability and defensive sector exposure makes it a compelling option.

The Dividend Machine That Won't Stop

Income investors often face a dilemma: high yields often come with higher risk, while safer options like bonds offer paltry returns. ZLB.TO straddles this divide. With a forward yield of 2.16% as of May 2025, it's no high-yield wonder, but its consistency is a standout feature. The ETF has maintained its CAD 0.28 quarterly payout since March 2023, despite market volatility caused by everything from oil price swings to interest rate uncertainty.

What's more, its dividend growth has been steady. The March 2023 payout marked a 3.7% increase from 2022 levels, and since then, the distribution has held firm. This stability is critical for retirees or those relying on predictable cash flows.

Sector Diversification: A Defensive Shield

ZLB.TO's low volatility isn't accidental. The ETF targets Canadian equities with lower sensitivity to market swings, focusing on sectors like utilities (15.21%), telecommunications (8.85%), and consumer services (24.11%). These are classic defensive industries: utilities and telecoms have steady demand, while consumer services include everything from healthcare to education—sectors that remain resilient even during recessions.

The ETF's largest allocation, however, is to financial services (22.63%), which includes banks and insurers. While banks can face headwinds in high-rate environments, their dominance in Canada's economy provides a steady revenue stream. This mix ensures that even if one sector falters, others hold up.

Why Low Volatility Matters Now

In 2025, markets are navigating a precarious path. The U.S. faces stagflation risks, with inflation sticking above 3% while GDP growth slows. Meanwhile, trade wars and energy supply issues add to uncertainty. In this environment, low-volatility strategies shine.

ZLB.TO's beta—a measure of its price sensitivity to the broader market—is 0.8, meaning it typically moves 20% less than the S&P/TSX 60 Index. This was evident in Q1 2025, when ZLB.TO delivered a 10.67% YTD return, outperforming the index's 5.73% gain. The ETF's focus on stable sectors has acted as a buffer against broader market turbulence.

Peers in the Frame: TUED.TO and BZLUF

To assess ZLB.TO's value, we must compare it to similar ETFs. Here's how it stacks up:

1. TUED.TO (TD Active U.S. Enhanced Dividend ETF)

• Yield: 3.59% (as of April 2025).
• Focus: U.S. equities with an emphasis on dividends, including sectors like utilities and healthcare.
• Risk: While TUED.TO offers a higher yield, its exposure to U.S. markets adds geopolitical and currency risks. Its beta isn't disclosed, but U.S. equities generally have higher volatility than Canadian ones.

2. BZLUF (BMO Low Volatility U.S. Equity ETF)

• Yield: 0.00% (data inconsistency noted; declared dividend of $0.27 in June 2025 suggests this is likely an error).
• Focus: U.S. low-volatility stocks.
• Risk: BZLUF's yield is puzzling, but its strategy mirrors ZLB.TO's. However, U.S. equities face their own challenges, including Fed rate policy and trade tensions.

The Trade-Off: Yield vs. Safety

TUED.TO's 3.59% yield is enticing, but its U.S. exposure means it's more vulnerable to dollar fluctuations and geopolitical risks. BZLUF's inconsistent yield data and U.S. focus also raise questions. ZLB.TO, meanwhile, offers a surer path to stability:

• Lower Beta: 0.8 vs. likely higher for U.S.-focused peers.
• Home-Field Advantage: Canadian equities, while not immune to global shocks, have less exposure to U.S.-China trade disputes.
• Dividend Reliability: No cuts in over two years despite market stress.

Investment Takeaways

For income investors:
1. Buy ZLB.TO for steady cash flows: Its yield may not excite, but its consistency is unmatched.
2. Consider a blend with TUED.TO for yield seekers: Pair ZLB.TO's stability with TUED.TO's higher payout, but monitor geopolitical risks.
3. Avoid BZLUF's confusion: Its yield data is unclear, and U.S. low-volatility stocks face their own headwinds.

The Bottom Line: In a world of uncertainty, ZLB.TO is the Swiss Army knife of ETFs—reliable, versatile, and built to endure.

Data as of June 2025. Past performance does not guarantee future results. Always review fund specifics and risk factors before investing.