Goldman Sachs has entered the popular market of dividend ETFs that sell call options to generate high yields and monthly payouts with its new offering, the Goldman Sachs Nasdaq 100 Core Premium Income ETF (GPIQ). This ETF has garnered attention for its sizable, double-digit distribution yield, monthly payout schedule, and diversified portfolio of highly-rated large-cap technology stocks.
The strategy behind GPIQ is to seek current income while maintaining prospects for capital appreciation. Like other monthly dividend ETFs, GPIQ aims to generate a consistent monthly distribution rate from options premium and equity dividends by investing in stocks in the Nasdaq 100 and selling covered calls against these holdings. The fund typically sells calls in an amount ranging between 25% and 75% of the value of the fund’s equity portfolio, with the ability to invest in and sell calls on other ETFs and over-the-counter instruments.
By selling covered calls on its holdings, GPIQ generates income to distribute to its holders on a monthly basis. However, this strategy comes with a tradeoff – potential upside from capital appreciation may be sacrificed. For example, if the stock price rises above the strike price of the calls sold, GPIQ is obligated to sell its shares at the contracted price, missing out on additional gains.
Despite this tradeoff, GPIQ offers a double-digit dividend yield, making it an attractive option for income investors. The fund’s distribution yield, when annualized, stands at 10.3%, which is higher than many other investment vehicles. Additionally, GPIQ has made a monthly payout consistently, further adding to its appeal.
With a portfolio of 103 stocks, including highly-rated holdings in the technology sector, GPIQ presents a compelling option for investors looking to add monthly income to their portfolios. As long as investors understand the potential tradeoffs involved, GPIQ looks like a great option for generating real income on a regular basis.