Normally, if I see a stock yielding over 8%, I walk away. Unless it’s a U.S. business development company (BDC), yields that high usually signal something’s wrong, such as an unsustainable payout, poor business model, or both.
But with exchange-traded funds (ETFs), that rule doesn’t always apply. Some, like covered call ETFs, are specifically designed to deliver high income by trading away some upside for options premiums.
One example that’s hard to ignore right now is Hamilton Healthcare YIELD MAXIMIZER™ ETF (TSX:LMAX), currently yielding a juicy 12.89% with monthly distributions.
U.S. healthcare stocks have been beaten up this year, partly due to earnings shortfalls from major insurers and political noise around drug pricing, especially with Donald Trump and RFK Jr. making headlines.
But structurally, the sector remains solid. Aging demographics, rising global healthcare demand, and ongoing innovation in biotech and pharma are powerful long-term tailwinds. LMAX gives you a way to tap into that potential while collecting sizable monthly income.
How does LMAX work?
LMAX holds an equal-weighted portfolio of large U.S. healthcare companies across key areas like insurance, pharmaceuticals, biotechnology, and medical devices. These are some of the most established businesses in the sector, known for their steady cash flows and long-term relevance.
To boost income, the ETF sells call options “at the money” on 30% of the portfolio. That means it gives someone else the right to buy those stocks at their current market price, usually one month out, in exchange for an upfront payment (called a premium).
This strategy generates consistent income, but it also caps the upside on the portion of the portfolio covered by the calls. If those stocks surge, the ETF gives up some of the gains.
You’re still getting exposure to a wide swath of healthcare stocks but trading some of the growth potential for higher income. The fund charges a 0.65% management fee, in line with other covered call ETFs.
How much income could I earn?
It depends on how much you invest in LMAX and where you hold it, but let’s keep it simple. Suppose you put your full $7,000 2025 TFSA contribution into this ETF. At the current price of $14.00 per share, that gets you 500 shares. With the most recent monthly distribution of $0.1540 per share, that works out to $77 per month tax-free.
Of course, this isn’t guaranteed. The distribution can fluctuate based on the premiums the fund collects from selling options and the dividends paid by the underlying stocks. And while the ETF is built for income, the share price can rise or fall depending on market conditions, especially if the healthcare sector comes under pressure.
