Data confirm the second quarter was another rough stretch for dividends, a scenario that didn’t weigh on the income-generating Nationwide Risk-Managed Income ETF (NUSI).
NUSI is an actively managed portfolio of stocks included in the Nasdaq-100 Index and an options collar. Per index rules, the fund only invests in the top 100 largest by market cap, nonfinancial stocks listed on NASDAQ. A collar strategy involves selling or writing call options and buying put options, thus generating income to hedge some downside risk. The strategy seeks to generate high current income monthly from any dividends received from the underlying stock and the option premiums retained.
“The net change in Q2 payouts, or the difference between increases and decreases, for all domestic common stocks registered a decline of $42.5 billion from a year earlier, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices,” reports Jeff Cox for CNBC. “That was the biggest drop since the $43.8 billion decreases in the first quarter of 2009 as the economy was escaping the Great Recession, and follows a $5.5 billion decline in the first quarter of this year.”
The Nationwide Risk-Managed Income ETF incorporates options exposure to help generate income and mitigate risk as a way to enhance total returns. Investors have long capitalized on covered call options strategies for income generation or protective put options strategies to protect against and limit losses.
Translation: NUSI’s income stream is sourced through covered calls, not common equity payouts. That’s meaningful because covered calls aren’t dividends, meaning the strategy isn’t vulnerable to negative dividend action.
With income stemming from covered calls, downside protection, and a distribution yield of 7.81%, NUSI is a strong alternative to traditional dividend income in this market climate.
“For the S&P 500 large-cap companies, dividends totaled $119 billion for the quarter, compared with the record $127 billion issued in the first quarter. However, the Q2 total was a slight increase from the $118.7 billion a year earlier,” according to CNBC.
NUSI can act as a complement to traditional equity and fixed income allocations or as the ideal protective hedge for investors with heavy exposure to technology and growth stocks because the fund is a “rules-based options trading strategy that seeks to produce high income using the Nasdaq-100 Index,” according to Nationwide.