This Nvidia ETF Has a Shocking 48% Dividend Yield – Is it Too Good to Be True?

Summary

The video discusses the Yield Max Nvidia Options Strategy ETF (NVDY), which offers an impressive 48% annualized yield through a covered call strategy. Despite high expenses and the potential for capped upside, the ETF has performed well due to Nvidia's stock growth. However, it lags behind direct stock investment returns, highlighting the trade-off between high dividend income and potential stock appreciation. The video also compares the ETF's performance to Tesla's and emphasizes the importance of considering stock volatility when investing in such high-yield instruments.

Takeaways

• 📈 The video discusses an ETF called NVDY that uses Nvidia to generate significant dividend income for investors, boasting an annualized yield of roughly 48%.
• 🔗 The presenter encourages viewers to visit fool.com/Frankle for top stock picks from the sponsor, The Motley Fool, supporting the channel.
• 💡 NVDY is part of the YieldMax ETFs, which are income-focused funds based on individual stocks like Tesla, Microsoft, and Apple, aiming to generate income through options strategies.
• 💰 The YieldMax Nvidia Options Strategy ETF (NVDY) has about $550 million in investor assets and an expense ratio of 1.01%, which is relatively high for an actively managed ETF.
• 📊 The ETF's strategy involves selling and writing call options on Nvidia, aiming to harvest yields while retaining capped participation in Nvidia's price gains.
• 🤔 The high yield of NVDY might seem too good to be true, and the presenter warns that these high-yielding instruments can be risky due to their nature.
• 📉 The ETF's performance has been impressive with a 173% total return since May 2023, but it pales in comparison to Nvidia's stock performance of 3,129% over the same period.
• 🔑 Selling call options limits upside potential; if Nvidia's stock price rises significantly, the ETF won't benefit from the full upside due to the sold options.
• 📌 The best-case scenario for the ETF is slight stock price increases that allow the call options to expire worthless, enabling the generation of new income through further option sales.
• 📉 In volatile markets, the ETF can suffer as the stock price drops without capping the downside, leading to a cycle of selling covered calls at lower strike prices.
• 🚀 The presenter's takeaway is that while YieldMax ETFs can generate significant income, direct stock ownership might be preferable for those who want to capitalize on the full potential of a company's growth.

Q & A

What is the ticker symbol for the ETF discussed in the video?

The ticker symbol for the ETF discussed is NVDY.

What is the annualized yield of the NVDY ETF as mentioned in the script?

The NVDY ETF has an annualized yield of roughly 48%.

What type of ETF is NVDY and how does it generate income for its investors?

NVDY is a Yield Max ETF, which is an actively managed fund that seeks to generate monthly income by selling and writing call options on Nvidia.

What is the expense ratio of the NVDY ETF and how does it compare to most index funds?

The expense ratio of the NVDY ETF is 1.01%, which is on the higher end compared to most index funds that typically range between 0.03% to 0.25%.

What is the primary objective of the Yield Max ETFs?

The primary objective of Yield Max ETFs is to generate income for shareholders, not necessarily to see the stock price rise significantly over time.

How does the Yield Max ETF strategy affect the upside potential of the underlying stock?

The Yield Max ETF strategy limits the upside potential of the underlying stock by selling call options, which means if the stock price rises significantly, the ETF does not benefit from the gains beyond the strike price of the call options sold.

What are the four basic scenarios that could happen with the Yield Max ETFs as described in the script?

The four basic scenarios are: 1) The stock rises sharply, capping the upside with a small gain. 2) The stock is flat, allowing new calls to be sold to generate income. 3) The stock falls, generating income from calls but also experiencing a drop in share price. 4) The stock experiences turbulence, making it difficult to recover due to selling new covered calls at lower strike prices.

What has been the total return for the NVDY ETF since its inception in May 2023?

Since its inception in May 2023, the NVDY ETF has generated a total return of 173% for shareholders.

How does the performance of the NVDY ETF compare to simply buying Nvidia stock during the same period?

If an investor had simply bought Nvidia stock during the same period, they would have achieved a total return of 3,129%, significantly higher than the return from the NVDY ETF.

What is the sponsor of the video and what do they offer to investors?

The sponsor of the video is the Motley Fool, a company that provides investing insights and stock recommendations for investors of all skill sets and risk levels.

What is the performance of the Tesla Yield Max ETF compared to Tesla's stock performance?

Since its inception, the Tesla Yield Max ETF has performed slightly worse than Tesla's stock, which has been up by 25%, due to the volatile nature of Tesla's stock price.