Explain ULTY’s Insane dividend, Is it real?

Key Points in This Article:

ULTY’s dividend yield, recently as high as 90.82%, is driven by a synthetic covered call strategy on volatile U.S. stocks, delivering real weekly payouts.
The ETF’s share price has dropped nearly 70% since its 2024 launch, with distributions often including return-of-capital, eroding net asset value.
High risk, a concentrated portfolio, and market dependence make ULTY a speculative play, best balanced with diversified investments.
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Too Good to Be True?

The YieldMax Ultra Option Income Strategy ETF (NYSEARCA:ULTY) has become a magnet for income-seeking investors, attracting all-comers with a headline-grabbing dividend yield that often exceeds 80% — and sometimes approaches a jaw-dropping 90%.

For income-hungry investors, this exchange-traded fund’s (ETF) promise of weekly payouts sounds like a golden ticket to financial freedom. But is ULTY’s insane dividend yield the real deal, or a risky illusion that could burn the unwary?

To answer this, we need to unpack the mechanics of ULTY’s strategy, its risks, and the sustainability of its payouts.

The Magic Behind ULTY’s Monster Yield

Launched in February 2024, ULTY isn’t your average ETF. Instead of tracking a broad market index or holding a diversified basket of stocks, it’s an actively managed fund that plays a high-stakes options game.

ULTY targets 15 to 30 volatile U.S. stocks — its targets currently include stocks like Righetti Computing (NASDAQ:RGTI), Rocket Lab USA (NASDAQ:RKLB), and Applovin (NASDAQ:APP) — chosen for their wild price swings.

By selling covered call options on these stocks, the fund rakes in hefty premiums, which, combined with dividends and U.S. Treasury income, power its jaw-dropping distributions. The cherry on top? ULTY pays out weekly, letting investors cash in or reinvest quickly, supercharging the compounding effect.

The Numbers Don’t Lie — But They Don’t Tell the Whole Story

ULTY’s yield is no mirage; it’s real and tangible. As of right now, the fund’s annualized yield is 86.73%, with distributions over the past year ranging from $7.16 to $7.94 per share. For an investor buying at last year’s share price of $11.44, that translates to a 62.6% to 68.7% return from dividends alone — leagues above the S&P 500’s puny 1% to 2% yield.

But here’s the kicker: this yield hinges on market volatility. It is not a fixed promise but a snapshot, heavily dependent on market conditions, particularly the volatility of ULTY’s underlying securities. If option premiums shrink due to calmer markets or if the fund’s holdings falter, the yield could plummet — potentially by double-digit percentages in a matter of weeks.

The Hidden Cost of Chasing Yield

The real sting comes with ULTY’s share price, which has taken a brutal beating. Since its debut, the ETF’s value has plummeted over 70%, dropping from $20 to $5.67 per share today. Why? The covered call strategy caps gains when stocks soar, while leaving investors exposed to the full downside of those volatile holdings.

Selling covered calls generates income but limits capital appreciation, as gains are surrendered when stocks rise above the strike price. Even worse, ULTY’s distributions often include return-of-capital, which erodes the fund’s net asset value (NAV) over time — essentially dipping into your principal to keep the payouts flowing.

ULTY’s allure is undeniable, but it’s not for the faint of heart. Its concentrated portfolio, high 1.3% expense ratio (even after fee waivers), and dependence on market turbulence make it a speculative bet.

Some analysts see a potential rebound, with price targets as high as $18 per share, while others warn of further slides to $4.10 per share. For thrill-seeking investors, ULTY’s yield can be a powerhouse in volatile markets, but those who are more conservative, they might find the NAV erosion and yield swings too nerve-wracking.

Pairing ULTY with a diversified ETF that targets higher yields — but without the same sort of high-wire tightrope walk — could help temper the risk, though it’s no cure-all.

Key Takeaway

ULTY’s insane dividend is real — for the moment — but it’s built on a mountain of risk. Its options-driven strategy thrives on volatility but sacrifices stability, making it a rollercoaster ride for investors.

The weekly payouts are tempting, but the price erosion and unpredictable yield demand caution. If you’re diving in, ULTY requires a sharp strategy and constant vigilance, not blind faith in those dazzling distributions.

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Author: Rich Duprey

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