Passive Income - QYLD Dividends

My quest continues to earn $100,000 passive income in a year. Supporting my strategy is $QYLD, a monthly dividend producing ETF that uses a Covered Call strategy by owning and selling Nasdaq 100 stocks. It’s not one for the faint of heart, but it fits with my passive income strategy and I went long.

There are two things that jump out at me risk wise.

For my readers, I’ve written covered calls before, and they’re a great strategy to amp up your returns. The drawback is that you might get your shares ‘called away’ and then end up losing out on more growth. It’s extremely harsh for small investors - like me - that don’t have billion-dollar portfolios and own 1000’s of shares of $MSFT or $AAPL. Every 100 shares that get called away from me hurts me in the end, so I’ve stopped doing that strategy. It makes sense to do it in an ETF that holds billions of dollars in these tech giants.

There are two things that jump out at me risk-wise. The high price and the possibility of a market correction. Price-wise, it’s trading near its 52 week high around $23.00. A bit rich but with a small share purchase I can mitigate my risk.

There’s a bunch of resistance it broke through (see red lines on chart) and it’s been climbing higher. I call this the Biden Transition effect. Everyone seems to feel better with Trump about to leave the Presidency. Of course, the next support, should it sell-off, is around $21.25. Plus it has a very thin volume (676k), so getting in and out can be hard in market turmoil.

QYLD has a reasonable expense ratio of 0.60%. I guess that’s ok considering the strategy it employs to make us dividends. The good news is that it has a low Beta, it’s at 0.69. Despite selling covered calls, it’s less volatile than the overall market and that fits my strategy nicely.

Of course, this strategy will start sucking some wind if the markets sell-off and enter a Bear Market. Still, there are always trending stocks and you can always write covered calls on them.

Here’s the great news, QYLD generates is $2.75 dividends per share in a year. A modest purchase of 100 shares will net you $275 a year. At the average price of $23 a share, an initial investment would cost you $2,300 and that’s completely do-able for people with IRAs.

What I like about QYLD is its monthly payout. That’s nice for people that are looking for monthly income and to do dollar-cost averaging. You build up a portfolio quicker this way!

My QYLD Strategy

It’s simple, I’ve gone long a small position in my Roth IRA and plan on reinvesting the dividends. It roughly generates 0.22 a share per month and on 100 shares that’s $22 and will net me just under 1 share of QYLD. Keep doing this over the next 12 months and I should see passive income greater than $275.

Even if the prices dip, and they will at some point, I would be able to buy more shares at lower prices. Of course, the risk is that dividend payout will decrease but the low beta helps me there as well.

Disclosure: Long

Learn Stock Trading, Investing, and Risk Management

There are a handful of financial and trading books that have made a HUGE impact on my investments. If you want to trade and learn about money and risk management then I suggest you get the Van Tharp book. If you want just focus on long term investing, get the Random Walk Down Wall Street book.

Hell, get them both. I owe my wealth to what I learned in those books.