I’ve repeated this point a ton, but as an investor, you should be focusing on total returns—meaning what you earn from both share price appreciation and dividends.
If you need passive income, you can just sell some shares to create your own synthetic dividend. It’s mathematically the same as a company paying you, but I know some of you hate doing this. That’s fine—it’s just a mental accounting bias and can be difficult to get over.
If this sounds like you, a covered call ETF could make sense. These ETFs sell options that essentially convert future upside potential into immediate income. Because of how options pricing works, they tend to spit out higher yields when market volatility is elevated.
Here are two covered call ETFs from Hamilton ETFs that I like, focusing on the high-growth U.S. tech and healthcare sectors.
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Yield from technology
Hamilton Technology YIELD MAXIMIZER™ ETF (TSX: QMAX) offers high income from a portfolio of 15 top U.S. tech stocks, including all of the Magnificent Seven.
This ETF sells covered calls on 30% of the portfolio, leaving 70% uncovered to still benefit from stock price growth. That balance allows it to generate high monthly income while keeping exposure to the long-term upside of the tech sector.
Historically, it’s been a strong performer. With distributions reinvested, QMAX returned 37.31% over the past year. Speaking of those distributions, QMAX pays monthly, and right now, that works out to a 10.86% annualized yield.
Yield from healthcare
Hamilton Healthcare YIELD MAXIMIZER™ ETF (TSX: LMAX) provides high income from a portfolio of 20 equally weighted U.S. healthcare stocks, using the same covered call strategy as QMAX.
This ETF sells covered calls on 30% of the portfolio, keeping 70% uncovered to capture long-term price growth. That means investors benefit from both high monthly income and exposure to the healthcare sector’s steady long-term returns.
Right now, LMAX pays an 11.56% annualized distribution yield, with monthly payouts for income-focused investors. As with QMAX, this yield can fluctuate.
The Foolish takeaway
I chose these two ETFs strategically to shore up sectors where the Canadian stock market is weak. For better or worse, the biggest and most innovative technology and healthcare companies are based in the U.S., not Canada.
If your portfolio is Canada-heavy, you’re likely overexposed to financials and energy. Adding LMAX and QMAX gives you diversification into high-growth U.S. sectors while also generating high monthly income.
