What do Boeing, Disney, Occidental Petroleum and Wynn Resorts, just to name a few, have in common? They’re among what is a growing list of S&P 500 dividend offenders and with payouts imperiled at some companies, investors, particularly retirees, should rethink how they access income.
The Nationwide Risk-Managed Income ETF (NYSEArca: NUSI) is one way of doing just that.
The Nationwide Risk-Managed Income ETF incorporates options exposure to help generate income and mitigate risk as a way to enhance total returns. Investors have long capitalized on covered call options strategies for income generation or protective put options strategies to protect against and limit losses.
“As U.S. companies deal with steep revenue drops and are forced to cut expenses, 203 stocks this year have reduced or suspended their dividends, 44 of them on the S&P 500 index. And, with economic uncertainty remaining going forward, that number could grow,” reports CNBC.
NUSI Matters Today
Integral to the NUSI thesis is that it’s income stream isn’t primarily derived from individual stocks. Rather, the fund’s covered call strategy generates the bulk of income investors receive.
Covered call strategies can potentially augment a portfolio during periods of heightened volatility. The covered-call options allow an investor to hold a long position in an asset while simultaneously writing, or selling, call options on the same asset.
Traders would typically employ a covered-call strategy when they have a neutral view of the markets over the short-term and just gather income from the option premium. While these buy-write ETFs may not produce any phenomenal price returns compared to the broader equities markets, their underlying options strategy helped them generate outsized yields.
NUSI can act as a complement to traditional equity and fixed income allocations or as the ideal protective hedge for investors with heavy exposure to technology and growth stocks because the fund is a “rules-based options trading strategy that seeks to produce high income using the Nasdaq-100 Index,” according to Nationwide.
The Nationwide Risk-Managed Income ETF uses an options trading strategy called a protective net-credit collar to generate income. The options strategy sells an upside call option and uses a portion of the proceeds received to buy a put option to hedge downside risk on an underlying portfolio of securities.
“While not all stocks have slashed dividends — at least 57 have increased them this year — relying solely on those payments for income may be missing the bigger picture,” according to CNBC.
For more on income strategies, visit our Retirement Income Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.