QYLD Dividends
Since late 2020, I have been an investor in the covered call ETF, QYLD, and I remain long. This fund has been a cornerstone in my portfolio, primarily due to its impressive 12% dividend yield, aligning seamlessly with my goal of building a stable source of passive income. The best part of owning QYLD for all these years are the monthly payouts and the generous $2.05 per share as I move toward a $100,000 passive income stream.
Understanding Qyld And Its Dividend Yield
QYLD, the Global X NASDAQ-100 Covered Call ETF, operates by owning stocks in the NASDAQ-100 Index and selling monthly covered call options on the index. This strategy provides income from option premiums, contributing to its high dividend yield. The ETF’s approach balances income generation with risk management, as the covered calls provide a cushion against mild market downturns while still allowing for participation in some of the market’s upside.
Performance Analysis
Since my investment in 2020, QYLD has displayed a commendable performance, characterized by its consistent dividend payouts. Its payout ratio, a key indicator of dividend sustainability, has remained stable, ensuring a reliable income stream. While the fund may not have shown significant capital appreciation due to its income-focused strategy, the steady dividends have been a core attraction.
Qyld Vs. Dividend Traps
A dividend trap often refers to a high-yielding stock whose dividends are unsustainable, typically leading to reduced payouts or financial distress. QYLD, however, stands apart due to its strategic income generation method. The consistent income from covered call premiums underlines the sustainability of its dividends. Moreover, the quality of the underlying assets — stocks in the NASDAQ-100 — adds a layer of security, as these are generally well-established companies.
Long-Term Viability and Personal Investment Rationale
QYLD’s strategy has demonstrated resilience in various market conditions, including the volatile phases since 2020. The ETF’s ability to generate income irrespective of market direction aligns with my long-term investment philosophy focused on passive income generation. While market fluctuations and interest rate changes can impact performance, QYLD’s core strategy of income generation through option premiums remains robust, supporting its long-term viability.
QYLD has a strong seasonality component too! My returns are doing well since I bought it in December 2020.
End Notes
In summary, QYLD has proven to be a solid component in my investment portfolio, primarily due to its consistent and high dividend yield. Its strategic approach to income generation, stability in payouts, and resilience in diverse market conditions underscore its distinction from typical dividend traps. As a tool for passive income, QYLD continues to align with my investment objectives, reinforcing my decision to hold onto it.
Disclosure: Long QYLD