ZXM ETF's Surprising Dividend Boost: A Risky Gamble or Smart Income Play?

The CI Morningstar International Momentum Index ETF (ZXM.TO) has thrown investors a curveball with its June 2025 dividend of $0.8118 per unit—a staggering 1,140% jump from its March 2025 payout of just $0.04. While this creates a fleeting forward yield of 0.36%, the ETF's erratic dividend history and momentum-driven strategy demand scrutiny. Is this a golden ticket for income investors, or a high-wire act in a rising rate environment?

The Dividend: A One-Time Boom or New Normal?

The June payout is the highest since its June 2024 distribution of $0.7496, but history warns against complacency. Over the past three years, ZXM's dividends have whipsawed between 1,008% gains and 82% plunges, leaving investors guessing. The trailing 12-month yield sits at 0%, reflecting skipped payments in 2024 and the irregular timing of distributions.

For income seekers, this volatility is a dealbreaker. A steady 2% yield from a dividend stalwart like a REIT or utility stock would offer far more predictability. However, ZXM's CAD-hedged exposure to international momentum stocks presents a unique angle. Its index tracks companies with rising prices, which could thrive in a growth pocket of an otherwise sluggish global market.

The Case for ZXM: Momentum in a Rising Rate World

The ETF's 1-year price forecast of $50.62 (a 4.87% gain from $48.27) hints at growth potential, but its risk profile is stark. The Morningstar International Momentum Index leans into sectors like tech and industrials—areas that could falter if rate hikes prolong.

The management expense ratio (MER) of 0.75% is reasonable, but hedging against CAD fluctuations adds complexity. A rising Canadian dollar could dilute returns from foreign holdings. Still, for investors who prioritize dividend reinvestment (DRIP) and diversification beyond domestic markets, ZXM offers a way to compound returns in a volatile sector.

The Red Flags: Dividend Volatility and Overvaluation

The ETF's “100% Buy” technical rating from Barchart clashes with its dividend instability. A stock price in “highly overbought territory” (as noted in forecasts) suggests complacency. If momentum stocks correct, ZXM could face a double whammy: falling prices and slashed dividends.

Moreover, the 0.36% yield is a rounding error for income-focused portfolios. Even if the $0.8118 payout repeats annually, it would still trail the average S&P 500 dividend yield of ~1.5%. Investors here are betting on capital gains, not income—a risky move when central banks are tightening.

The Bottom Line: A High-Risk, High-Reward Speculation

ZXM is not a “set it and forget it” income play. Its dividend is too inconsistent, and its momentum strategy is inherently volatile. However, if you're a growth-oriented income investor willing to stomach wild swings, it offers two compelling hooks:
1. Diversification: Exposure to 50+ international momentum stocks hedge against home bias.
2. DRIP Potential: Reinvesting the $0.8118 dividend at current prices boosts compounding power—if the payouts stabilize.

Action Plan:
- Aggressive Investors: Buy now for momentum exposure, but set a strict 15% stop-loss.
- Income Buffs: Wait for a dip below $45 to boost yield to ~0.9%, then dollar-cost average.
- Avoid entirely if you need steady cash flow or fear a global growth slowdown.

In a rising rate world, ZXM is less a bond proxy and more a high-octane growth play. Only bet here if you've got a strong stomach—and a backup plan for when momentum fades.