Much of that income comes from a strategy known as covered calls. Rather than relying solely on dividends, these ETFs generate additional cash by selling call options on the stocks or other assets they already own. The premiums they collect are then distributed to shareholders. The trade-off is that while the strategy can produce eye-catching yields, it also limits some of the upside when the underlying holdings rally.
According to TipRanks’ High Dividend Yield ETFs tool, three ETFs currently stand out with dividend yields at or above 8%: FT Vest S&P 500 Dividend Aristocrats Target Income ETF (KNG), Global X S&P 500 Covered Call ETF (XYLD), and J.P. Morgan Nasdaq Equity Premium Income ETF (JEPQ).
Here’s what investors should know about each one.
FT Vest S&P 500 Dividend Aristocrats Target Income ETF (KNG)
Unlike many covered-call ETFs that write options on broad market indexes or technology-heavy portfolios, KNG focuses on the S&P 500 Dividend Aristocrats – companies that have raised their dividends for at least 25 consecutive years. The fund uses a partial covered-call strategy, selling call options on a portion of its holdings to generate additional monthly income while preserving some upside potential.
