DIVO Continues To Be A Strong Income Alternative To Standard Dividend ETFs And Bonds

seekingalpha04-30

PM Images As the Fed Funds Rate sits at a multi-decade high of 5.25% - 5.50%, there are many attractive options for generating income from your capital. When it comes to personal finance, individual ...

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When it comes to personal finance, individual ...</p>\n\n<a href=\"https://seekingalpha.com/article/4687233-divo-strong-income-alternative-to-standard-dividend-etfs-bonds\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"SHY","symbol_name":"债券指数ETF-iShares Barclays 1-3年国债","start_time":0,"source_url":"https://seekingalpha.com/article/4687233-divo-strong-income-alternative-to-standard-dividend-etfs-bonds","article_id":"2431347992","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1445810122/image_1445810122.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2431347992","pubTimestamp":1714482000,"sourceInfo":{"source_id":"seekingalpha_fund","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"PM Images As the Fed Funds Rate sits at a multi-decade high of 5.25% - 5.50%, there are many attractive options for generating income from your capital. When it comes to personal finance, individual o","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"SHY":"债券指数ETF-iShares Barclays 1-3年国债","VGSH":"美国短期国债ETF-Vanguard","SMP":"Standard Motor Products Inc","FDN":"First Trust Dow Jones Internet I","BK4581":"高盛持仓","BK4550":"红杉资本持仓","BK4588":"碎股","GBIL":"Goldman Sachs Access Treasury 0-1 Year ETF","BK4585":"ETF&股票定投概念","BK4124":"机动车零配件与设备","DIVO":"Amplify YieldShares CWP Dividend & Option Income ETF","TLT":"20+年以上美国国债ETF-iShares","TLT.AU":"Tilt Renewables"},"translate_title":"DIVO仍然是标准股息ETF和债券的强劲收入替代品","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"VGSH":1,"DIVO":1,"GBIL":1,"SHY":1,"SMP":1,"TLT":1,"TLT.AU":1,"US30Y.BOND":0.9,"US7Y.BOND":0.9,"US6M.BOND":0.9,"US5Y.BOND":0.9,"US3Y.BOND":0.9,"US2Y.BOND":0.9,"US10Y.BOND":0.9,"US12M.BOND":0.9,"FDN":0.9,"US912797HH31.BOND":0.6,"US912797HG57.BOND":0.6,"US912797HE00.BOND":0.6,"US912797GW17.BOND":0.6,"US912797GL51.BOND":0.6,"US912797GK78.BOND":0.6,"US912797GB79.BOND":0.6,"US912797FS14.BOND":0.6,"US912797FH58.BOND":0.6},"content_text":"PM Images As the Fed Funds Rate sits at a multi-decade high of 5.25% - 5.50%, there are many attractive options for generating income from your capital. When it comes to personal finance, individual objectives vary from person to person. While some focus on capital appreciation and growing their net worth, there are some that shift their focus to generating income, and others that take a hybrid approach and incorporate multiple styles into their investment mix. There is no correct way to invest, and allocating capital consistently to an S&P 500 index fund with a proven track record of producing positive returns may not fit everyone's investment objectives. It feels as if there are countless products dedicated to generating income, and in a time when the risk-free rate of return is above 5%, investors have many approaches they can take. The \"T-bill and chill\" phrase became popular as rates increased, and the 2-year T-bill exceeded a 4.5% yield. While I have capital allocated to a CD ladder with maturity dates ranging from 3-months to 12-months, that's idle cash that I keep on the sidelines that never enters the market. When it comes to generating income, I am not a fan of bonds, especially at what could be the end of a high-rate environment. I would rather allocate capital toward a fund that has a dual focus, such as the Amplify CWP Enhanced Dividend Income ETF (NYSEARCA:DIVO), which has established a track record of generating a mid-single-digit yield without sacrificing too much capital appreciation. When the Fed eventually pivots, the risk-free rate of return won't be as attractive, but DIVO will continue to deliver on its objectives as it invests in an array of income-producing equities and implements a covered-call overlay strategy to produce additional income that is paid to its shareholders monthly. I think DIVO is going to become more popular, and present investors with a hybrid approach that will become more popular in an environment where the methodology of T-bill and chill evaporates.   Seeking Alpha Following up on my previous article about DIVO I had previously written an article about DIVO on December 1st, 2023 (which can be read here), and since then, shares have appreciated by 7.25% while the S&P 500 has gained 11.86%. When the dividend income is factored into DIVO, the total return since December 1st has been 9.42%. In that article, I had discussed how DIVO was a strong alternative to traditional income-focused ETFs that didn't implement a covered-call overlay strategy and why I was bullish on its hybrid approach for 2024. Now that we have more economic data, I am following up on my investment idea because I believe DIVO will continue higher in 2024, and capital will be moving out of bond ETFs and finding its way back into the market, which could be bullish for DIVO. I will model why DIVO has been a superior choice to bonds during the high-yield environment, and why I think it's a good fund for investors looking for a hybrid approach that can blend the ideologies of capital appreciation and income investing.   Seeking Alpha Risks to investing in DIVO While I am bullish on DIVO, there are investment risks for current or potential investors to consider. DIVO's portfolio consists of 41 holdings and is subject to individual equity risk in addition to market dynamics. DIVO utilizes a covered call strategy to generate additional income in addition to the dividend and interest income its holdings produce. By writing covered calls on its positions, DIVO caps upside potential, and if the market rallies, DIVO is likely to underperform the market, creating opportunity risk. As an actively managed ETF that doesn't follow an indexing strategy, there is also decision risk that the fund manages to select poor investment options that cause value from the ETF to erode. Investors should consider the risks of DIVO and compare them to their investment goals. DIVO is designed to be a hybrid ETF that can deliver moderate appreciation and income. If your goals don't align with this methodology or your tolerance for risk is low then DIVO may not be a good investment vehicle for you. Looking at the income generated from DIVO against bond products  Bond yields may look enticing to income investors as yields range from 5.39% to 4.78% across the 3-month and 30-year Treasuries. Depending on your situation, allocating capital to a 10-year or 30-year note may be appropriate as it could generate the amount of guaranteed income you're looking to produce. Purchasing shorter duration bonds can increase the yield, but getting paid 4.7% on the 5-year and 5% on the 2-year isn't that enticing to me, considering we're probably at the peak of the rate cycle, and by the time these mature, rates will be lower. There is a tremendous amount of capital deployed across Treasury funds, and I will show the performance from capital appreciation to income generated over the past 5-years from several products compared to DIVO. I wanted a mixture of bond products, so I selected the iShares 20+ Year Treasury Bond ETF (TLT), Goldman Sachs Access Treasury 0-1 Year ETF (GBIL), iShares 1-3 Year Treasury Bond ETF (SHY), and the Vanguard Short-Term Treasury Index Fund ETF Shares (VGSH). These products provide a data set for short-term treasuries, 1-3 year treasuries, 0-1 year treasuries, and long-term treasuries. Across these 4 funds, there is $99.52 billion in assets under management (AUM) ranging from $5.58 billion to $44.97 billion. DIVO has $3.13 billion in AUM with more enticing results, yet investors are still piling into bond funds.   Trading Economics Going back 5-years the Fed Funds Rate was 2.5%, and we entered an even lower rate environment during the pandemic era. As inflation increased and turned out not to be transitory, the Fed took rates higher at the quickest pace since the early 1980s. While investors purchase bonds directly from the Treasury Department, there is $99.52 billion of AUM across VGSH, SHY, GBIL, and TLT, as it's just easier to purchase a bond fund. Since April 30th, 2019, shares of DIVO have increased by 27.95% from $29.73 to $38.04. DIVO has generated $9.56 in income per share, which is a 32.17% yield on invested capital. The total return for DIVO over the past 5-years, when you combine the capital appreciation and income generated is 60.12%. None of these bond funds come close to these results. VGSH has declined by -4.53% and generated $5.69 in income, which is a 9.42% yield on invested capital. VGSH has netted investors a total return of 4.89% in the same period. SHY is similar as shares have declined by -3.45% while generating $6.62 of income for a yield on invested capital of 7.87%. SHY has netted investors 4.42% over the past 5-years. GBIL has done the best of these products as the shares are relatively flat, having declined by -0.21% while generating $9.77 of income, which is a 9.74% yield on invested capital. GBIL has had a total return of 9.53% over the past 5-years. Going the long-term route with TLT hasn't done well, as shares have declined by -28.64% while the income generated was $13.77, which was an 11.13% yield on capital. TLT has a net loss of -17.50%. DIVO has actually been a superior option to bond products and bonds in general because rates have only been above 4% since the end of 2022.   Steven Fiorillo, Seeking Alpha Why I am a fan of DIVO and think it's going to do well in the future I am a hybrid investor, and a section of my portfolio is allocated to income-producing assets. DIVO is a strong complementary asset in my opinion, because DIVO is structured to generate more yield than traditional equity-focused dividend ETFs by incorporating a covered call overlay strategy. DIVO invests in equities they feel will appreciate in value while generating lucrative call option premiums. DIVO's underlying holdings generate dividend income, which the fund collects, while a covered-call overlay strategy is implemented on an individualized basis to generate additional income. This is why DIVO can consistently outperform many equity-focused dividend products on a continuous basis. The fund is set up so that managers can generate roughly 2-3% of dividend income while creating an additional 2-4% of call option premiums. The managers deploy a tactical approach and won't write call options just to generate yield, they wait for a position to demonstrate strength or for implied volatility to increase. This correlates to the fund not being completely restricted and the covered calls not capping all the potential upside when markets appreciate. All eyes will be on Jerome Powell this week when the FOMC press conference occurs. Currently, the Fed is expected to bring rates to 4.6% in 2024, 3.6% in 2025, and 3.1% in 2026. The chances of a rate cut occurring at the May meeting are 2.4%, according to CME group, with the chances of a rate cut occurring or starting at the September meeting at 57.4%. Eventually, the Fed will start the cutting process, and when this occurs, the T-bill and chill methodology will become less attractive. Outside of direct T-bills and investment products, there is roughly $6 trillion sitting on the sidelines in money market accounts, according to the ST. Louis Fed. As rates start to decline, I think we will see a shift in capital from bond investment products and money market accounts to individual equities and ETFs that focus on income. I think this will help the underlying positions in DIVO as more businesses will be willing to spend on expansion, and that is likely to help EPS grow in its positions and help DIVO appreciate its value. We could also see a boost of inflows into DIVO as an alternative to generate income.   CME Group Conclusion  In the short term, a lot depends on the Fed, but eventually, a pivot will occur, and investors will start looking at alternatives to risk-free assets to generate income. Over the past 5 years, DIVO has appreciated by 27.95% while generating $9.56 in dividends, which is a 32.17% yield on invested capital. DIVO's total return has been 60.12%, which is an average of 12.02% between capital appreciation and income generated. Options are becoming more common, and funds that utilize an option overlay strategy have gone mainstream. I am bullish on DIVO and feel it will continue higher in the back half of 2024 while generating reliable monthly income. If you're looking for a fund that can generate sustainable yield when the risk-free rate of decline occurs without sacrificing all of the upside during a bull cycle, then DIVO is a very interesting ETF to consider as part of an overall investment mix. I am long DIVO and think it will become more popular when the Fed pivots.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2431347992"}