A broad array of strategies now exist for income investors looking to expand or diversify their portfolio. Understanding the different types of yield and what they measure may allow for better alignment with desired investment outcomes.
30-day SEC Yield
The SEC implemented the 30-day yield for investors to more easily compare bonds and funds. This standardized measure of yield includes income earned from dividends and interest paid in the last 30 days while subtracting expenses. It makes it easier for investors to gauge what they would earn over the course of a year if the yields remained the same as the most recent period measured.
Notably, 30-day SEC yield does not include income earned from options. This makes it a good measure of many funds, but doesn’t capture the full picture for options strategies.
30-day SEC yield is generally calculated on the last day of the month. Funds must publicly share the 30-day SEC yield of their funds, though some only include this measurement on a quarterly basis, depending on when they report to the SEC.
Distribution Rate
Similar to the 30-day SEC yield, this allows investors to gauge what they would earn in the next 12-months should the most recent distribution remain the same. Unlike 30-day SEC yield, distribution rate (or distribution yield) also includes income earned from options contracts.
Distribution rate is calculated by taking the most recent distribution and multiplying it by 12, thereby annualizing it. The resulting number is then divided by the fund’s NAV. While distribution rate may differ from the trailing 12-month distributions, its generally used as a more forward-looking estimate. By only measuring from the most recent distribution, it may more accurately reflect the current environment. However, distribution rate is still a measurement of past performance.
Dividend Yield
Not all funds will have a dividend yield, as it only applies to those strategies that invest in asset classes that pay out dividends. Dividend yields give investors the ability to measure income earned from cash invested. However, it’s a measurement directly impacted by rising and falling stock prices.
It’s also a measurement that can be calculated in different ways. Some calculate dividend yield by dividing trailing 12-month dividends earned by the stock price. However, others may instead take the most recent dividend paid and annualize it before dividing by the stock price. Of note, some companies distribute quarterly dividends as well as a larger annual dividend. Depending on when dividend yield is calculated, the resultant number may be less representative of dividend yields earned from a full year of investment.
When considering dividend yield, investors must also be aware that stock price movement directly affects the calculation. Falling prices result in higher dividend yields, while rising prices result in smaller measurements. Understanding price trends helps keep dividend yields in perspective.
NEOS Investments offers a variety of options income ETFs for investors with a range of distribution rates. From the 5.78% distribution rate of the NEOS Enhanced Income 1-3 Month T-Bill ETF (CSHI) to the NEOS Bitcoin High Income ETF (BTCI)’s 27.60% rate (as of November 30, 2024), investors do not lack for choices when income investing. NEOS offers income strategies across asset classes to complement and diversify portfolios.
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