ZMID.TO's Dividend Stability Amid Mid-Cap Volatility: Is the 1.17% Yield Sustainable?

The BMO S&P US Mid Cap Index ETF (ZMID.TO) recently declared its quarterly dividend of CAD 0.13, marking a period of relative stability after a tumultuous 2023. But with the forward dividend yield now at 1.17%, down from peaks of 2.1% in recent years, investors are asking: Can this yield hold up as mid-cap equities face headwinds? Let's dissect the data.

The Dividend Trajectory: A Rocky Road to Stability

ZMID.TO's dividend per share has oscillated significantly over the past five years. After holding steady at CAD 0.10–0.15 through 2020–2022, it spiked to CAD 0.21 in late 2023—likely reflecting strong US mid-cap earnings—before crashing by 33% to CAD 0.13 in early 2024. Since then, the payout has remained flat, with no hikes or cuts.

The key question is whether this stability is a sign of resilience or a ceiling. The ETF's trailing yield of 0.96% (as of June 2025) suggests that rising share prices (last closing price: CAD 44.53) have outpaced dividend growth. Over the past three years, dividend growth averaged just 7.38%, far below the ETF's P/E ratio of 35.59, which hints at valuation concerns.

Yield Sustainability: Mid-Cap Context Matters

The ETF tracks the S&P MidCap 400, an index of US companies with market caps between $2–$10 billion. Mid-caps are often more volatile than large caps but can offer growth opportunities. However, recent data shows the S&P MidCap 400's YTD return through May 2025 was -3.83%, reflecting sector-specific struggles like declines in healthcare and lingering policy uncertainty.

For ZMID.TO's yield to stay sustainable, its underlying holdings must maintain dividend discipline. The ETF's portfolio includes components like Valero Energy (VLO), which reported a 63% payout ratio in Q4 2024 and hiked dividends by 6% in early 2025. Utilities and industrials—sectors with historically stable cash flows—also feature prominently.

The Dividend Aristocrats Edge

A subset of ZMID.TO's holdings are the S&P MidCap 400 Dividend Aristocrats, which require at least 15 years of consecutive dividend increases. These companies, such as Consolidated Edison (ED) and Automatic Data Processing (ADP), have payout ratios under 80% and strong balance sheets. Their resilience in low-growth environments could buffer the ETF's yield.

However, the broader mid-cap landscape is mixed. While sectors like utilities and financials hold up, tech and healthcare—comprising 23% of the index—are under pressure. This sectoral split means ZMID.TO's yield is a balancing act between stable dividend payers and growth stocks facing margin pressures.

Investment Considerations

• For Income Seekers: The 1.17% yield is modest compared to high-yield ETFs, but the stability since early 2024 suggests ZMID.TO could provide predictable income. Pair it with higher-yielding utilities or REITs for diversification.
• Risk Alert: The P/E ratio of 35.59 is elevated, signaling potential overvaluation. If mid-cap earnings disappoint, dividends could face pressure.
• Long-Term Play: The ETF's exposure to Dividend Aristocrats offers a hedge against market volatility. Investors should focus on the 5–10 year horizon, where consistent dividend growers typically outperform.

Final Take

ZMID.TO's yield is sustainable in the near term, supported by its core holdings' financial discipline. But investors must weigh the ETF's valuation and sector risks. For a conservative income portfolio, this remains a hold—but keep an eye on the S&P MidCap 400's broader trajectory.

Bottom Line: The CAD 0.13 dividend is a sign of stability, not growth. Stick with it for steady returns, but don't expect a yield rebound anytime soon.