KNG's 8.6 Percent Yield Comes From Selling Calls on Dividend Aristocrats, And It Has Lagged NOBL Since 2018
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KNG's 8.6 Percent Yield Comes From Selling Calls on Dividend Aristocrats, And It Has Lagged NOBL Since 2018
KNG tracks the S&P 500 Dividend Aristocrats and overlays the holdings with a covered-call strategy. The fund sells call options monthly against every position and distributes the option premium, targeting an additional yield above the underlying dividend basket. The premium is the source of the headline yield, but it also limits gains when underlying stocks rally. Over an eight-year period from April 2018, KNG delivered 93% total return versus 107% for NOBL, implying meaningful annualized underperformance. Over five years, KNG returned 25.8% compared with 30% for NOBL, with the gap attributed to capped upside during strong rallies in dividend aristocrats such as Johnson & Johnson.
"The yield, though, comes out of the same upside it caps. But is it worth holding when compared to the ProShares S&P 500 Dividend Aristocrats ETF ( NYSEARCA:NOBL | NOBL Price Prediction)? Let's find out."
#covered-calls #dividend-aristocrats #income-etfs #sp-500 #total-return-comparison
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