Which dividend income ETF is the best? I’m comparing the QYLD, RYLD, JEPI, NUSI and DIVO to show you dividend yields, returns, how each income fund works and which is best for you. The funds all use the covered call strategy for dividend income but that’s where the similarity ends.
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One of the most frequent questions I get is on the covered call income ETFs and which is best. These funds like the Global X Nasdaq 100 Covered Call ETF (QYLD) all pay high dividend yields on a monthly basis but have different investing strategies. What are the risks to each, are they too good to be true and which should you buy?
In this video, I’ll review the top income ETFs including the QYLD, RYLD, JEPI, NUSI and DIVO for yields and returns. I’ll compare the strategies across all five funds and reveal the pros and cons of each.
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Global X Nasdaq 100 Covered Call ETF (QYLD) is the largest income ETF of the group and pays an 11% dividend yield with a 10% annual return. The fund holds shares of stocks in the Nasdaq 100 index, mostly tech stocks but with a small percentage of other companies. It sells call options against this each month, selling options against about 1% of the holdings to generate cash to pay the dividend. The fund is a good one for growth investors because it gives you exposure to higher-return tech stocks while also producing a dividend. The downside is the relatively high expense ratio of 0.6% and over-exposure to tech stocks in stock market weakness.
Global X Russell 2000 ETF (RYLD) is similar to the QYLD except it invests in small cap stocks, the smallest 2000 companies in the Russell 3000 index. This gives it exposure to fast-growing small caps which means the return can be higher. The fund pays a 12% dividend yield which is the highest in the group and has produced a 14% return. Instead of holding individual stocks, the Global X Russell 2000 ETF holds shares in a small-cap ETF and then sells calls against that.
JP Morgan Income ETF (JEPI) also uses the covered call strategy but does it on the S&P 500 market index. The benefit of this is that it gives investors broader exposure to other sectors rather than just tech stocks like with the QYLD. The portfolio managers do not seem to hold closely with the index weights though, so here is one where manager skill will definitely be a critical point. The JEPI pays a 7% yield, the lowest of the group, but has returned 23% annually since inception which is the highest of the five income funds.
Nationwide Risk Managed Income Fund (NUSI) is the only income ETF of the group to also use the protective put strategy for limiting losses. This means the managers can buy put options as well as using covered calls. Protective puts will limit downside losses better than the call strategy but are not an income-producing strategy so this will tend to lower the dividend yield and return on the fund. That said, the NUSI could outperform in a falling market because it will have that greater downside protection.
Amplify Enhanced Dividend Income Fund (DIVO) offers the lowest dividend yield of the group at just 5% but still produces a solid 17% return. The fund has the broadest strategy of all and gives the managers discretion to pick any large company with a history of increasing dividends. As with the other funds, it sells covered calls against individual stocks it holds to generate cash flow for the monthly dividend payment.
0:00 Top Income ETFs Comparison
1:40 Why are Income ETFs so Popular?
2:48 Global X Nasdaq 100 Covered Call ETF (QYLD)
7:20 Global X Russell 2000 ETF (RYLD)
9:32 JP Morgan Income ETF (JEPI)
12:02 Amplify Enhanced Dividend Income Fund (DIVO)
14:04 Nationwide Risk Managed Income Fund (NUSI)
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Joseph Hogue, CFA spent nearly a decade as an investment analyst for institutional firms and banks. He now helps people understand their financial lives through debt payoff strategies, investing and ways to save more money. He has appeared on Bloomberg and on sites like CNBC and Morningstar. He holds the Chartered Financial Analyst (CFA) designation and is a veteran of the Marine Corps.