A Look at BMO’s New Low-Fee Canadian Dividend Index ETF

One of my long-standing gripes with the iShares Canada lineup is that it still carries a number of legacy strategies from the early days of the Canadian ETF industry.

Think pre-2006, when product choice was limited and you could get away with charging 0.60% for a plain vanilla passive index fund because the mutual fund alternative was north of 2%.

That is what makes the launch of the BMO MSCI Canada IMI High Dividend Yield Index ETF (ZDIV) notable. BMO has come out with a very competitive 0.10% management expense ratio, squarely placing this ETF in the modern era of fee compression.

BMO’s lack of a truly passive dividend index ETF has been something I have pondered for a while. Before ZDIV, the closest option in its lineup was the BMO Canadian Dividend ETF (ZDV).

That fund is sizable at roughly $1.6 billion in assets under management, but it carries a 0.39% management expense ratio. The reason is structural.

ZDV is actively managed, albeit rules based. It does not track an external benchmark. Instead, it screens for stocks using criteria such as three-year dividend growth rate, dividend yield, and payout ratio.

ZDIV is different. It is explicitly passive, tracking the MSCI Canada IMI High Dividend Yield Select Index. Is it worth it? I think so, particularly if you are a dividend investor. Here is what I like about ZDIV so far.

ZDIV Index Methodology

The benchmark for the ZDIV pulls from the broader MSCI Canada IMI Index, with IMI standing for Investable Market Index. That matters. It means the starting universe includes large, mid, and small caps. This contrasts with strategies like the S&P/TSX 60, which are confined to large-cap names only.

From that broader universe, the index becomes more selective. It prioritizes higher dividend income while layering in quality screens. This is not a simple yield-chasing strategy.

Specifically, the index reviews 12-month past performance in order to eliminate companies with deteriorating fundamentals that could increase the risk of a dividend cut. That extra filter is important. High yield on its own can sometimes signal distress rather than strength.

On fundamentals, the index looks attractive relative to the broader MSCI Canada IMI. As of January 30, 2026, the dividend yield for the ZDIV benchmark stood at 4.21%, compared with 2.23% for the parent index. Valuation metrics are also more conservative. The trailing price-to-earnings ratio was 16.95 versus 21.93 for the broader benchmark. On a forward basis, it was 14.30 versus 16.71. The price-to-book ratio was 1.88 compared with 2.57. In other words, you are getting higher income at a lower valuations.

Historically, the performance record of the benchmark has been solid. Since inception on May 26, 2010, it has delivered an annualized total return of 10.54%, compared with 9.82% for the broader MSCI Canada IMI. That outperformance comes with a caveat. These figures are before fees and taxes. Dividend-heavy strategies can generate higher taxable distributions, which matter in non-registered accounts.

Source: MSCI

Still, the risk profile has been favorable. The benchmark has historically exhibited lower volatility than the broad market, with a beta of 0.85. Annualized standard deviation has also been lower over trailing three-, five-, and ten-year periods.

Source: MSCI

So, from a methodology standpoint, the structure looks disciplined rather than gimmicky. Higher yield, lower valuation, and historically lower volatility is not a bad starting point for a Canadian dividend ETF, especially at just 10 basis points in fees.

ZDIV Portfolio Composition

Naturally, ZDIV is going to be less diversified than a broad Canadian equity market fund. Once you apply dividend and quality screens, the investable universe shrinks. But if income and quality are what you are targeting, ZDIV executes that mandate cleanly.

Compared to the broader MSCI Canada IMI Index, which holds 264 companies, ZDIV’s benchmark currently holds just 51. However, despite the narrower universe, it is actually less top-heavy than the parent index. The largest holding sits at a 5.72% weight, compared with 7.14% for the largest position in the broader index. So, while there are fewer names, concentration risk at the top is somewhat mitigated.

Sector exposure still reflects the realities of the Canadian market. Financials and energy remain dominant allocations, with utilities coming in third. That is not surprising given where dividend yield tends to be concentrated in Canada.

One notable difference is that ZDIV excludes real estate investment trusts (REITs). I am actually in favor of that decision. REIT distributions are often largely categorized as ordinary income, which can reduce tax efficiency in non-registered accounts. By excluding REITs, ZDIV tilts more toward traditional corporations that typically pay eligible Canadian dividends.

Source: MSCI

While the ETF has not yet paid out its first distribution, I would expect most of the income to be classified as eligible dividends, with perhaps occasional return of capital. From a dividend investor’s standpoint, there is quite a bit to like about how ZDIV is constructed.