YieldMax MSTR Option Income Strategy ETF (MSTY +1.39%) has a shocking dividend yield. If you look at the trailing 12 months' worth of dividends, the yield is 290%! Annualize the last dividend payment, and it is still a gigantic 65%.
That sounds great. However, here are three facts that should dissuade you from buying this high-risk, high-yield investment.
1. The ETF is invested around only one stock
YieldMax MSTR Option Income Strategy ETF uses a complex options strategy to generate income. That options strategy is focused on just one stock, Strategy (MSTR +1.32%) (formerly known as MicroStrategy). There is an inherent lack of diversification in the exchange-traded fund's (ETF's) approach, leaving it open to deep downturns in Strategy's stock price. While volatility can make it easier to sell options, there's only so much the ETF can do if the price of the single stock it invests around implodes.
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2. The dividend isn't reliable
If you can look past the idiosyncratic risk of investing around just one stock, you still need to consider the risk of a variable dividend. Because the size of the dividend is driven by the options trading opportunity present at any given time, the dividend naturally rises and falls over time. Over the past year, the dividend has ranged from $2.37 per share to $0.13.That's a huge range.
If you actually use the dividends your portfolio generates to pay your living expenses, you probably can't afford that much variability. Notably, the variable dividend also means that the dividend yield you see at any given time is ephemeral. The next dividend payment could dramatically alter the number.
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3. The value of the ETF has steadily declined
YieldMax MSTR Option Income Strategy ETF's total return since its inception is roughly 90%. However, total return requires dividend reinvestment. If you used the dividends this ETF paid out, you wouldn't have achieved that same result. In fact, the ETF's share price has declined by more than 60% over the same period.
For most income investors, the goal is a steady, if not growing, dividend, backed by an asset that can appreciate over time. That's not what has happened here: At least a portion of the dividend investors have collected has turned out to be little more than a return of their capital.
YieldMax MSTR Option Income Strategy ETF isn't a great income investment
For most income-focused investors, YieldMax MSTR Option Income Strategy ETF won't be a good fit. The massive yield is alluring, but when you look at the full picture, it comes with too many risks and trade-offs compared to other investment options.
