© Vadi Fuoco / Shutterstock.com
Monthly dividend stocks are becoming increasingly popular, especially those that amplify their yields using options. However, you may not be chasing the best ones today, as Roundhill S&P 500 Target 20 Managed Distribution ETF (NYSEARCA:XPAY), NEOS Nasdaq-100 High Income ETF (NASDAQ:QQQI), TappAlpha SPY Growth & Daily Income ETF (NASDAQ:TSPY) can be better alternative picks for you, compared to JPMorgan Equity Premium Income ETF (NYSEARCA:JEPI), Goldman Sachs Nasdaq-100 Premium Income ETF (NASDAQ:GPIQ), and Global X NASDAQ 100 Covered Call ETF (NASDAQ:QYLD).
There’s nothing inherently “wrong” with these ETFs. However, they all share a central theme of using options to derive income by capping the upside, while keeping downside risk largely exposed.
And if you’re willing to take that downside risk for the generous yields, you might as well lean towards those that yield higher, while mostly following the same trend.
Roundhill S&P 500 Target 20 Managed Distribution ETF (XPAY)
The Roundhill S&P 500 Target 20 Managed Distribution ETF is an actively managed ETF that pays monthly distributions at a target annualized rate of 20% while maintaining exposure to the S&P 500 Index.
It does so by investing at least 80% of its net assets in FLEX Options (Flexible Exchange Options) that reference the SPDR S&P 500 ETF (NYSEARCA:SPY). These specialized options contracts allow the fund to replicate S&P 500 exposure while generating the cash flow needed for its high monthly distribution payments. The S&P 500 exposure is a secondary objective, while the main objective is maintaining a yield above 20%.
The 20% targeted rate is obviously not guaranteed and may be increased or decreased as the market sags and swells.
XPAY currently yields 20.54%. It carries an expense ratio of 0.49%, or $49 per $10,000. The ETF is down 2.34%, but the fat dividends have caused it to outperform JEPI and QYLD significantly.
It is slightly behind GPIQ but can close the gap if the Nasdaq-100 flatlines.
NEOS Nasdaq-100 High Income ETF (QQQI)
Speaking of GPIQ outperforming, the NEOS Nasdaq-100 High Income ETF may be worth going for instead. The yield here is notably higher, though it does come at the cost of a higher expense ratio. In net, though, the dividend yield is still much better.
The QQQI is an actively-managed ETF that gives you partial upside exposure to the Nasdaq-100 Index, while giving you a frothy yield of 13.42%. GPIQ, on the other hand, comes with a 9.65% yield.
QQQI’s expense ratio is markedly higher at 0.68%, vs. the GPIQ’s 0.29%, but it’s worth going for if you want to squeeze out more income from your holdings.
Total returns have been roughly on par with GPIQ.
All things considered, I’d choose QQQI over GPIQ if you’re looking at medium to short-term exposure. Having a medium-term to short-term view on these covered call ETFs is a smarter idea. A decline akin to the one in 2022 could take these ETFs years to recoup. And after three years of rallying, the market is more vulnerable to such a correction.
TappAlpha SPY Growth & Daily Income ETF (TSPY)
The TappAlpha SPY Growth & Daily Income ETF is another actively managed ETF. It combines S&P 500 exposure with a daily options strategy by holding a long SPY ETF position to provide direct exposure to the S&P 500 index, while simultaneously writing out-of-the-money call options on that position each trading day. These options expire the same day they are written.
These are known as 0DTE (zero days to expiration) options that allow the fund to capitalize on the rapid time decay inherent to these ultra-short-term contracts.
The strategy has worked quite well, and TSPY has managed to outperform both JEPI and QYLD significantly. It wouldn’t be fair to expect an S&P 500 ETF to beat the GPIQ, but it comes surprisingly close.
TSPY comes with a 13.61% dividend yield. The expense ratio is on the moderately higher end at 0.77%, or $77 per $10,000.