Product Insights

Dividend Investing and Covered Calls with BMO ETFs

May 9, 2023

BMO ETFs offer a full suite of traditional dividend ETFs, complemented by covered call ETFs for investors looking for enhanced cashflow. With market uncertainty, dividend investing is an effective factor approach to invest in mature industry leading companies with consistent cash flow generation.

BMO dividend and covered call ETFs have track records stretching back over a decade, delivering cashflow while main training strong total returns. Within dividend strategies, we focus on avoiding yield traps, companies with deteriorating financials and a higher chance of cutting dividends. Within high dividend covered call strategies, we hold similar portfolios and apply a light touch with the covered call overlay to better position the ETFs for capital growth.

BMO ETFs maintain a consistent rules-based approach to investing in dividend paying companies. For dividend ETFs, in a market where cash is king, we focus not just on dividend payers but dividend growers to enable strong total returns. Based on the screening criteria below, we identify companies with both a willingness (dividend growth) and ability (dividend payout) to increase dividends over time.

  1. Identify securities that meet market capitalization and liquidity requirements.
  2. Screen on 3 year dividend growth, ranked by total dividends
  3. Screen on 5 year dividend payout, including the next year forecast
  4. The portfolio includes the highest dividends available securities that have passed the screens
  5. Weighting is by total dividends, subject to sector and security caps
  6. The portfolio is rebalanced in June and reconstituted in December.

BMO Dividend ETFs*

BMO Canadian Dividend ETF

ZDV
Distribution Yield:
4.2% | M
Mgmt. Fee: 0.35%
Risk Rating: Medium

BMO US Dividend ETF
ZUD | ZDY | ZDY.U
Distribution Yield:
ZUD:
2.8% | ZDY: 2.6% | ZDY.U: 2.8% | M
Mgmt. Fee: 0.30%
Risk Rating: Medium

BMO International Dividend ETF
ZDH | ZDI
Distribution Yield:
ZDH: 4.5% | ZDI: 4.4% | M
Mgmt. Fee: 0.40%
Risk Rating: Medium

For BMO high dividend covered call ETFs, we require further liquidity in the portfolio based on the options market, so while we use the same screened total dividends approach, we select a more concentrated portfolio to put more weight in the large cap securities.

  • ZCN: 233 holdings, top ten 35% of the portfolio 
  • ZDV: 52 holdings, top ten 43% of the portfolio 
  • ZWC: 36 holdings, top ten 45% of the portfolio

BMO High Dividend Covered Call ETFs*

BMO Canadian High Dividend Covered Call ETF
ZWC
Distribution Yield:
7.4% | M
Mgmt. Fee: 0.65%
Risk Rating: Medium

BMO US High Dividend Covered Call ETF
ZWS | ZWH | ZWH.U
Distribution Yield:
ZWS: 6.1% | ZWH: 6.0% | ZWH.U: 6.2% | M
Mgmt. Fee: 0.65%
Risk Rating: Medium

BMO Europe High Dividend Covered Call ETF
ZWE | ZWP
Distribution Yield:
ZWE: 7.2% | ZWP: 7.0% | M
Mgmt. Fee: 0.65%
Risk Rating: Medium

BMO Global High Dividend Covered Call ETF
ZWG
Distribution Yield:
7.5% | M
Mgmt. Fee: 0.65%
Risk Rating: Medium

For other BMO covered call ETFs, we use differentiated weighting strategies that may offer growth profiles that are closer to the broad market over the long term.

BMO Covered Call Dow Jones Industrial Average Hedged to CAD ETF
ZWA
Distribution Yield:
6.4% | M
Mgmt. Fee: 0.65%
Risk Rating: Medium

BMO Covered Call Canadian Banks ETF
ZWB | ZWB.U
Distribution Yield:
ZWB: 7.0% | ZWB.U: 7.8% | M
Mgmt. Fee: 0.65%
Risk Rating: Medium


BMO Covered Call US Banks ETF
ZWK
Distribution Yield:
11.1% |
Mgmt. Fee: 0.65%
Risk Rating: High

BMO Covered Call Utilities ETF
ZWU
Distribution Yield:
8.3% | M
Mgmt. Fee: 0.65%
Risk Rating: Low to Medium

BMO Covered Call Technology ETF

ZWT
Distribution Yield:
5.0% | M
Mgmt. Fee: 0.65%
Risk Rating:
Medium



All BMO covered call ETFs use a similar dynamic implementation strategy for cashflow enhancement.

  1. Select out of the money calls to allow for price return
  2. Select short dated calls to capitalize on time decay close to maturity
  3. Write on approximately half the portfolio to allow for growth
  4. Dynamically adjust to market conditions, by writing further out of the money in volatile markets to capture a similar level of premiums while giving the portfolio room to recover

A closer look at Canadian dividend options and broad market exposure

Hypothetical Growth of $10,000 : ZWH, ZDY, ZSP
ETF
ZWC
ZDV
ZCN
1YR
-0.20
0.78
2.63
3YR
14.55
18.56
15.11
5YR
5.87
8.90
9.02
10YR
-
6.75
8.36
Since Inception
5.15
7.30
7.56
Inception Date
February 92017

October 212011

May 292009

Source: Morningstar, April 28th, 2023, hypothetical growth of $10,000, common inception February 2017-April 2023.

All returns in CAD Past performance does not indicate future results. Annualized performance of the BMO Canadian High Dividend Covered Call ETF (ZWC), BMO Canadian Dividend ETF (ZDV) and the BMO S&P/TSX Capped Composite Index ETF (ZCN).

A closer look at U.S dividend options and broad market exposure

Hypothetical Growth of $10,000 : ZWP, ZDI, ZEA
ETF
ZWH
ZDY
ZSP
1YR
8.69
8.16
7.88
3YR
13.85
12.44
13.11
5YR
8.66
7.63
12.25
10YR
-
-
-
Since Inception
10.74
12.65
16.33
Inception Date
February 102014
March 192013
November 142012

Source: Morningstar, April 28th, 2023, hypothetical growth of $10,000, common inception February 2014-April 2023.

All returns in CAD Past performance does not indicate future results. Annualized performance of the BMO US High Dividend Covered Call ETF (ZWH), BMO US Dividend ETF (ZDY) and the BMO S&P 500 Index ETF (ZSP).

A closer look at International dividend strategies and broad market exposure

Hypothetical Growth of $10,000 : ZWP, ZDI, ZEA
ETF
ZWP
ZDI
ZEA
1YR
21.31
18.34
15.06
3YR
12.87
14.12
10.70
5YR
4.90
4.30
4.83
10YR
-
-
-
Since Inception
5.07
5.94
6.59
Inception Date

March 022018

November 052014
February 102014

Source: Morningstar, April 28th, 2023, hypothetical growth of $10,000, common inception March 2018-April 2023.

All returns in CAD Past performance does not indicate future results. Annualized performance of the BMO Europe High Dividend Covered Call ETF (ZWP), BMO International Dividend ETF (ZDI) and the BMO MSCI EAFE Index ETF (ZEA).

BMO ETFs dividend and covered call strategies are effective portfolio construction tools and are particularly relevant in today’s uncertain markets and high inflation. With over ten years track record, these BMO ETFs deliver strong total returns and cashflow generation.

*Source: BMO Global Asset Management, April 28, 2023. The payment of distributions is not guaranteed and may fluctuate. The payment of distribu- tions should not be confused with a fund’s performance, rate of return or yield. If distributions paid by the fund are greater than the performance of the fund, your original investment will shrink. Distributions paid as a result of capital gains realized by a fund, and income and dividends earned by a fund are taxable in your hands in the year they are paid. Your adjusted cost base will be reduced by the amount of any returns of capital. If your adjusted cost base goes below zero, you will have to pay capital gains tax on the amount below zero. Please refer to the funds, distribution policy in the prospectus.

This communication is intended for informational purposes only and is not, and should not be construed as, investment, legal or tax advice to any individual. Particular investments and/​or trading strategies should be evaluated relative to each individual’s circumstances.

Individuals should seek the advice of professionals, as appropriate, regarding any particular investment. S&P®, S&P/TSX Capped Composite®, S&P 500® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and TSX” is a trademark of TSX Inc. These trademarks have been licensed for use by S&P Dow Jones Indices LLC and sublicensed to BMO Asset Management Inc. in connection with BMO ETFs. The ETFs are not sponsored, endorsed, sold or promoted by S&P Dow Jones LLC, S&P, TSX, or their respective affiliates and S&P Dow Jones Indices LLC, S&P, TSX and their affiliates make no representation regarding the advisability of trading or investing in such BMO ETF(s).

The BMO ETFs or securities referred to herein are not sponsored, endorsed or promoted by MSCI Inc. (“MSCI”), and MSCI bears no liability with respect to any such BMO ETFs or securities or any index on which such BMO ETFs or securities are based. The prospectus of the BMO ETFs contains a more detailed description of the limited relationship MSCI has with BMO Asset Management Inc. and any related BMO ETFs.

The Dow Jones Industrial Average Index CAD Hedged is a product of Dow Jones Opco, LLC (“Dow Jones Opco”), a subsidiary of S&P Dow Jones Indices LLC and has been licensed for use. Dow Jones®” and Industrial Average Index CAD Hedged are service marks of Dow Jones Trademark Holdings, LLC (“Dow Jones”), and has been licensed to Dow Jones Opco and sublicensed by BMO Asset Management Inc. in connection with [insert name of ETF or ticker symbol]. [insert name ETF] is not sponsored, endorsed, sold, or promoted by Dow Jones Opco, Dow Jones, and their respective affiliates, make no representation regarding the advisability of trading or investing in such a product(s).

Commissions, management fees and expenses all may be associated with investments in exchange traded funds. Please read the ETF Facts or pro- spectus of the BMO ETFs before investing. The indicated rates of return are the historical annual compounded total returns including changes in unit value and reinvestment of all dividends or distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Exchange traded funds are not guaranteed, their values change frequently and past performance may not be repeated.

For a summary of the risks of an investment in the BMO ETFs, please see the specific risks set out in the BMO ETF’s prospectus. BMO ETFs trade like stocks, fluctuate in market value and may trade at a discount to their net asset value, which may increase the risk of loss. Distributions are not guaranteed and are subject to change and/​or elimination.

BMO ETFs are managed by BMO Asset Management Inc., which is an investment fund manager and a portfolio manager, and a separate legal entity from Bank of Montreal.

®/™Registered trademarks/​trademark of Bank of Montreal, used under licence.