XYLD: 12% Yield, Monthly Payer Vs. S&P Alternatives

Summary

  • The XYLD ETF uses covered calls on the S&P 500 to generate monthly income.
  • It yields ~11.68% and pays a variable distribution.
  • We compare XYLD to other S&P-based covered call funds.
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Looking for more income from the S&P 500? Though the S&P only yields ~1.5%, there are several S&P 500-related ETFs and CEFs with much higher dividend yields.

Profile:

The Global X S&P 500 Covered Call ETF (NYSEARCA:XYLD) seeks to provide investment results that correspond generally to the price and yield performance, before fees and expenses, of the Cboe S&P 500 BuyWrite Index.

It follows a "covered call" or "buy-write" strategy, in which the Fund buys the stocks in the S&P 500 Index and "writes" or "sells" corresponding call options on the same index. The fund has a 0.60% expense ratio. (XYLD site)

Holdings:

XYLD's top four sectors are Tech, Healthcare, Financial, and Consumer Cyclical, which combine to form ~64% of its portfolio. The biggest overweights vs. the S&P 500 are Tech and Healthcare, while Financials is the most underweighted sector.

Tech had been a great sector to be in over the past several years, but hasn't been so in 2022, registering a -25.55% YTD performance. Healthcare also is down -11.62%. There's only one sector in the green so far in 2022 - you guessed it - Energy, which is up over 18%. XYLD's Energy weighting is 4.36%, vs. the S&P's 5.85%.

XYLD sectors

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As an S&P 500-based fund, XYLD's top 10 holdings is comprised of large-cap familiar names, such as Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), and Alphabet (GOOG) (GOOGL):

XYLD ETF top 10 holdings

XYLD Site

Performance:

As of 6/30/22, XYLD had a 7.15% NAV performance since its inception, with a slightly higher 7.25% price performance, a bit lower than its index. It lagged its index over the past one-, three-, and five-year periods:

XYLD ETF performance

XYLD Site

There are several other ETFs and CEFs which also employ a covered call strategy on the S&P 500, in order to generate income.

The Eaton Vance Tax-Managed Buy-Write Income Fund (ETB), a CEF has had the best performance over the past year and so far in 2022, leading these other funds by a wide margin.

XYLD is near the bottom for price performance in 2022, and over the past year, quarter, and month:

XYLD ETF dividend performance

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On a total return basis, however, XYLD is in second place, thanks to its high 12%-plus trailing dividend yield, with a ~1.98% total return, vs. 6.68% for ETB, and 6.9% for the S&P 500:

XYLD vs peers total return

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Dividends:

XYLD pays a variable monthly distribution, which has run from $.3451 to $.5014 over the past 12 months, following the ebb and flow of volatility, and subsequent options pricing.

XYLD dividend history

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At $43.40, XYLD has a forward yield of 11.68%, based upon its most recent distribution of $.4223. It should go ex-dividend on ~8/23/22, with a ~8/31/22 pay date:

Global X S&P 500 covered call ETF price

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Pricing:

While ETFs such as XYLD and JEPI tend to have small discounts or premiums to their underlying NAVs, CEFs such as EBT, BXMX, and SPXX can have much wider discounts or premiums. A useful strategy when buying CEFs is to try to buy them at deeper discounts or lower premiums than their historical averages.

As of the 7/20/22 close, all three of these CEFs, ETB, BXMX, and SPXX, were trading at higher premiums than their one-, three-, and five-year averages, with ETB having the highest premium to NAV.

XYLD vs peers nav

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Parting Thoughts:

If you think that the S&P 500 is going to rebound in the second half of 2022, now may not be the best time to buy XYLD as its price performance will lag the market. On the flip side, if your outlook is bearish, XYLD can offer you some downside protection.

All tables by Hidden Dividend Stocks Plus, except where otherwise noted.

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This article was written by

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Robert Hauver, MBA, was VP of Finance for an industry-leading corporation for 18 years, and publishes SA articles under the name DoubleDividendStocks. TipRanks rates DoubleDividendStocks in the Top 25 of all financial bloggers, and Seeking Alpha rates us in the Top 5 of several categories, including Dividend Ideas, Basic Materials, and Utilities. 

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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Disclaimer: This article was written for informational purposes only, and is not intended as personal investment advice. Please practice due diligence before investing in any investment vehicle mentioned in this article.

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