Avoid These Popular ETFs With Triple-Digit Yields

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I was recently asked by a Wealthy Retirement reader to evaluate the dividend safety of the YieldMax Magnificent 7 Fund of Option Income ETFs (YMAG), which has a 39% yield.

This is an interesting ETF in that it pays weekly dividends. I’ll get into how the YieldMax ETFs work in a minute, but as is the case with all the YieldMax ETFs, this dividend is variable, so you can’t count on a specific amount of income in any year, month, or week.

Here’s a chart showing the last three months’ worth of weekly dividends.

Chart: The Epitome of a Variable Dividend

It’s a pretty sure bet that the dividend will go up and down again during the year (and month).

A variable dividend will always get an “F” rating for dividend safety because of the frequent declines in the payout. This ETF is no different.

But this question sparks a broader discussion of the YieldMax ETFs. These ETFs offer enormous yields on some of the most popular stocks in the market, including Tesla (TSLA), Apple (AAPL), Super Micro Computer (SMCI), MicroStrategy (MSTR), and practically any other stock that becomes trendy.

However, they don’t buy shares of their underlying stocks. They buy a call and sell a put on the stock and then sell a call, creating a synthetic covered call. Then they buy Treasurys to generate more income and boost their gigantic yields.

And when I say gigantic, I mean it.

The YieldMax TSLA Option Income Strategy ETF (TSLY) has a current yield of 118%.

That’s not a typo.

The YieldMax NVDA Option Income Strategy ETF (NVDY) yields 53%.

Tame by comparison is the YieldMax MSFT Option Income Strategy ETF (MSFO), with “only” a 26% yield.

But even when you include the lofty payouts, you’d make more money by simply owning the stocks rather than buying these ETFs.

Before we get into their performance, there are a couple of things to remember.

1. The more complicated the product, the more expensive it is.

Buying, selling, and holding a stock costs nothing with most brokerages.

But trading options, managing positions, and paying everyone from traders to portfolio managers to lawyers all costs money. As a result, there is an expense to owning these ETFs – generally 1%. That’s not terribly high, but it does reduce your return.

2. Wall Street doesn’t just give away money.

If you could really make 26%, 53%, or 118% owning these positions, hedge funds and large institutions would gobble them up faster than you can click your mouse. There’d be nothing left for retail investors.

When you come across any investment with a sky-high yield, beware. The risk will be much greater than usual. Very high yields are there for one of two reasons: to draw you into a risky investment or to collect fees from you (or both).

In November, I looked at all of YieldMax’s single-stock option income ETFs. Almost all of them underperformed their respective stocks, even when you included the giant yields.

Here are a few updated examples for the full year 2024, with dividends included.

Chart: YieldMax ETFs Consistantly Underperform

Even with the Tesla ETF’s 100%-plus dividend yield, it trailed Tesla’s stock by more than 30 percentage points. Nvidia’s ETF underperformed by 53 percentage points. Microsoft’s lagged the stock by more than 1.5 percentage points. (Again, the ETFs’ returns do include the giant yields they paid.)

How about when the stock goes down? Surely the big yield offsets some of the losses, right?

Nope.

Moderna (MRNA) was one of the few stocks that YieldMax covers that fell in 2024. It lost 57.9%. The YieldMax MRNA Option Income Strategy ETF (MRNY) lost 59.3% despite paying out $9.39 per share in dividends, which would have equaled a 39% yield on the closing price on December 29, 2023. So even with a 39% yield, you would’ve lost more money owning the ETF.

I can’t say it more plainly than this…

Do not chase those yields.

Don’t buy the YieldMax ETFs or others that are like them.

They are not good investments.


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Adam Reynolds 1 day ago Member's comment
like the single stock ETFs. Held the index ETFs like $XDTE, $QDTE, $JEPI... the yield is great, but the reward is much greater with single stocks. So usual suspects... $MSTY, $NVDY, $COIN, $NFLY, $AMZY, $FBY. I also have $ULTY and $YMAX. I don't DRIP automatically. I take the cash and watch the NAV price. I buy on Ex div day if u want to accumulate more shares and offsets some NAV erosion. I also add shares when the market takes a dump...as ling as my acquisition price is less than my cost. If my cost is lower, I pass. Accumulate shares at the lowest cost over time.
Mike Nolan 2 weeks ago Member's comment
Thanks Bill Myers, how are the taxes at the end of the year?
Dick Kaplan 2 weeks ago Member's comment
I agree with you, Mr. Money Matters. $MAGS beats $YMAG hands down over the last year however that involves some decent timing especially for the DCA crowd also I have a feeling we're due for a correction which $YMAG doesn't do that bad. In fact it beats out $QDTE & $YMAX for overall return of capital over the last year. Whether you like him or hate him, President Trump brings a lot of uncertainty to the market.
Money Matters 2 weeks ago Member's comment
I disagree -I have a $20 cost on CONY and it is currently at around $14.00. I have collected $21.14 in dividends so far. It's all good from here on out. Same story with MSTY. As with any investment in any stock ever created--risk vs. reward.
Kurt Benson 2 weeks ago Member's comment
Bill Myers, how much of that 683k portfolio is invested? We are looking at a similar situation and amount. I have it about half invested right now, with plans to add more to our holdings in the future. Only one investment DOESN'T pay dividends at this point, but it is tied to a very lucrative investment so should do well.
Harry Sinclair 2 weeks ago Member's comment
Bill Myers, What ETF’s with med to high dividend would you recommend? My portfolio is not that substantial as yours but I believe it can get there. Thanks.
Bill Myers 2 weeks ago Member's comment
I generated $283k ( dividends) on a $680k portfolio. 41% Yield on Cost using Covered call ETFS from YieldMax, Defiance and Roundhill. I'm 65. Buy and Hold is over for me. To hard to sell stocks at right time. I need monthly income. I reinvest about 50% of the $283k to offset price dips in the ETF and use vs the rest for retirement income. Depends on what you want Income or Growth.