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For dividend investors, there are those who will invest in Dividend Kings/Aristocrats and then there are those who will invest in dividend ETFs.
There are advantages of investing in a Dividend King and Aristocrats. For one, you get to own a share of that company, you get a solid dividend monthly or quarterly.
And for the most part, stocks in the Real Estate, Financials, Communication, Healthcare, Utilities, Energy and Consumer Staples sectors tend to have stocks that are not so expensive that pay a solid dividend.
There are solid companies that pay dividends such as Verizon, Altria, Coca-Cola, Procter & Gamble Co., Abbvie, Merck, Realty Income Corp., Prudential, WP Carey Inc., Duke Energy Corp., Southern Co., etc.
But if you start investing in sector-based stocks, you don’t want to be overvalued in a sector and you start to realize, can you keep to that 5% for each eleven sectors?
If only one can invest in an inexpensive stock such as Abbvie and Realty Income and that was it. But unfortunately, investing in the stock market is not that easy because you have to realize there are other factors that can affect your stock.
AT&T was known to be a trustworthy dividend producer and they were often inexpensive at under $30, but AT&T is cutting their dividend.
Cheaper mREITS that people loved for their dividend, may be hurting in today’s economy if the bubble bursts.
So, for me I find it important to look into non-company based dividend producing dividends.
And one of the more popular ones right as of late is the Nationwide Risk-Managed Income (NYSE Arca: NUSI).
Nationwide Mutual Insurance Company is a U.S. Insurance and Financial Services Company based in Columbus, Ohio founded in 1926.
What started as a company of farmers not happy with paying the same automobile insurance rates as their city counterparts, the Ohio Farm Bureau created their own insurance company and from 1928, would expand to many more states.
The company then invested in fire insurance and by 1938, they became the Farm Bureau Life Insurance Company and by 1943, would operate in 12 states.
By 1955, the company would change its name to Nationwide Insurance and the company would eventually have a financial division and thus there is Nationwide Financial as well.
And as mentioned, one of their popular funds being offered in the market is Nationwide Risk-Managed Income ETF (NYSE Arca: NUSI).
The fund strategy is as follows:
The investment seeks current income with downside protection.The fund is an actively-managed exchange-traded fund (“ETF”) that seeks to achieve its investment objective principally by investing in a portfolio of the stocks included in the Nasdaq-100® Index and an options collar (i.e., a mix of written (sold) call options and long (bought) put options) on the Nasdaq-100. It is non-diversified.
Now, covered call ETF’s are becoming popular, such as QYLD, RYLD, JEPI, DIVO and there is NUSI.
But covered call ETFs have inherent risks. For one, they are not growth stocks and pretty much they pay out almost everything towards dividends.
So, when it comes to stocks, you have growth stocks from companies like Amazon, Facebook, Alphabet (Google) or Tesla that won’t pay dividends as they want to put that money back to the growth of the company. Investors want to see growth in hopes their investment pays off in the futures, so their small investment can grow and see it as a better way to park their money rather than a savings account.
And many stocks who want growth and dividends, such as Apple, Nvidia, etc. who are huge companies that grow, but the pay a dividend but not really high. But for those who like growth and getting a little in return of a dividend, this is perfect for them.
And then there are stocks that pay a high dividend, are inexpensive but don’t have high growth.
As an investor, you need to ask yourself, what is most important. Growth, Growth/Dividend or Dividends?
And most importantly, if you do aim for diversification, and have multiple stocks in each sector, what is the possibility of investing in all those stocks equally without over-diversifying?
This is the beauty of dividend income ETFs. They invest in companies in all sectors and can pay a dividend and offer a bit of protection as well.
You have those like SCHD, DGRW, SPYD that produce dividends but there are those who want to see a bigger payout with ETFs that deal with options trading.
And it’s important to note, if you go for those ETFs, growth is not a factor. It’s dividend income.
I’ve already written about QYLD, which is a monthly-based dividend ETF and it’s been a useful stock for those to add dividends for their monthly income. It’s risky because unlike a stock, for QYLD or RYLD, if you sell, you are not selling it like a stock where you can factor in the buy price and the increase or decrease for taxes, you will be paying the full amount of the ETF. So, long-term investors see these risky covered call ETFs as dividend play with the intention of NEVER EVER SELLING. And of course, that adds to the risk of letting it ride during good times and bad times. You’re going to have to bare that risk for the sake of dividends.
I’m going to be transparent and say that I invest in covered call ETFs. I like the monthly payouts and I understand the risks involved of selling but my investment towards these ETFS were purely for monthly dividend play as I wanted to see a constant flow of income each month vs. quarterly producing stocks. These covered call ETFs for me, helps balancing that and I’m quite fine with covered call ETFs, especially as I’m getting older.
But what if you want covered call ETFs that pay a dividend monthly but has less risks as the mentioned cover call ETFs and adds protection in a volatile market?
That is where Nationwide Risk-Managed Income ETF (NYSE Arca: NUSI) comes into play.
Nationwide says about NUSI:
An income solution that targets high current income and seeks to provide investors with a measure of downside protection in falling markets and potential for upside participation in rising markets.
So, the fund managers purchases NASDAQ-100 index put options to fully hedge the portfolio and seeks to minimize losses in the underlying equity portfolio. The net credit, the difference between the proceeds from the sell of the calls and the cost of the puts is returned to investors as monthly income.
So, NUSI is a fascinating collared option strategy for those who seek to reduce or eliminate duration risk and interest rate sensitivity with an added potential upside benefit.
According to Nationwide:
- A compliment to a traditional 60/40 allocation
- A bond alternative that may provide investors with greater flexibility across different market cycles
- A volatility dampener that may augment existing investment allocations.
- A tool that may aid in supplementing current income.
Currently, NUSI’s last closing price as of July 16th was $28.16.
The 52 week range was $25.34 to $28.83 and the total assets is $389.2 million and the gross expense ratio is .68% (due to it being actively managed) and has a portfolio at 11%.
The ETFs primary top 10 holdings (of 105 holdings) are Apple (11.68%), Microsoft (9.98%), Amazon (8.70%), Alphabet C and A (4.01% and 3.61%), Facebook Class A (3.91%), NVIDIA (3.53%), Paypal (2.52%) and Adobe Inc. (2.08%). So, the top 10 are primarily Information Technology and Communication Services and a Consumer Discretionary sector.
But as you look at the other 105 holdings, you’ll find some consumer staples such as Pepsi, Netfllix, Costco, Starbucks in there as well.
So, for the most part, you are getting diversification with this ETF.
And while the ETF was created prior to the pandemic, it had held steadily under $30 which is expected and priced a little more than QYLD and RYLD but you get the downside protection which the other two don’t offer.
As you can see the dividend payouts at 7.57% yield, the payouts have been nearly .18 cents per month, per unit.
So, if you were to invest in 25 units of NUSI, that would be $4.51 per month which is about an estimated $54.13 annually. If you were to invest in 100 units of NUSI, you would receive $18.04 per month and an estimated $216.52 annually.
Yes, QYLD and RYLD would earn you more dividend payments monthly and annually but you don’t get the downside protection. The downside protection comes at the expense of income, but not a whole lot.
During the Pandemic Year 2020, NUSI only dropped 10% while QYLD which have zero protection, crashed 25%. NUSI did outperform QYLD. But QYLD has a higher yield will allow QYLD to catchup and surpass the loss from NUSI.
What it comes down to is your risk tolerance?
Higher Yield, Higher Risk, Higher Dividend Payout or Lower Yield, Lower Risk, Good Dividend Payout?
If it’s the latter, then you may want to look into Nationwide Risk-Managed Income ETF (NYSE Arca: NUSI).
As always, perform your due diligence and do a lot of research before investing. Talk to a financial advisor and find out if Nationwide Risk-Managed Income ETF (NYSE Arca: NUSI) would be a perfect investment for you.
