These Could Be The Hottest Dividend Stocks Right Now

Over the last six months, different high-yield sectors have caught up with the broader market’s gains kicked off a year ago. Higher share prices mean lower yields for income-focused investors, and with most of these stocks, current yields are markedly lower than they were a few months ago. I have recently reviewed exchange-traded funds (ETFs), exchange-traded notes (ETNs), and closed-end funds (CEFs) that use covered call strategies to boost income and pay attractive dividend yields.

The covered call strategy involves selling call options to boost the income from individual stocks or a portfolio of stocks. Option contract buyers are traders or speculators looking for a quick profit if the underlying stock zooms higher. Options contracts typically expire within a period ranging from a week to a couple of months, so traders must be correct about the direction, timing, and magnitude of a stock price move.

Option sellers play the low-risk side of selling calls to the speculators. The seller gets to keep the option premium and only must deliver the stock if its price rises above the option’s strike price. The strike is the price the option buyer would pay to exercise the call. When calls are sold, the strike price is usually above the current share price, so having a sold call exercised is a win-win with a covered call trade.

Instead of trying to attempt covered call trading on your own, some funds incorporate covered call trading as part of their investment strategy. Here are five closed-end funds with very attractive yields, primarily due to the use of covered calls.

The Madison Covered Call and Equity Strategy Fund (MCN) has paid a $0.18 per share quarterly dividend since March 2009.

The payout gives the fund a 9.2% yield.

The portfolio of high-quality stocks also produces attractive total returns, with a 36% total return over the last three years.

The Voya Natural Resources Equity Income Fund (IRR) invests in shares of companies primarily engaged in the energy, natural resources, and basic materials industries.

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Disclaimer: The information contained in this article is neither an offer nor a recommendation to buy or sell any security, options on equities, or cryptocurrency. Investors Alley Corp. and its ...

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