Chasing yield can be a dangerous game unless, of course, you’re a young, risk-taker who’s looking for a high upside and a big, fat check at the end of the month. Either way, those really swollen dividend yields (think 7-10%) in the equity markets tend to accompany a lot of pressure. And while I’m all for buying dips, provided you’re putting in the homework and see real value that’s not yet being reflected by the market, I think that investors should put in extra due diligence to ensure all blind spots are covered.
When it comes to the fallen stocks that are deep into a bear market, the stakes are high. And buying dips could lead to even more pain, especially in this kind of market, with the 2026 turning negative for major U.S. indices and the TSX Index not all too far behind.
For income hunters, I think going the route of an exchange-traded fund (ETF) could be a less risky way to score higher yields. You’re getting instant diversification and, in the case of some of the specialty income ETFs, added income from various option strategies. In short, that means more income, but at the cost of upside. In this market (fresh off a 2025 surge with valuations on the higher end), that’s a worthy trade-off for retirees, at least in my opinion.
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Hamilton Enhanced Canadian Covered Call ETF
Hamilton Enhanced Canadian Covered Call ETF (TSX: HDIV) stands out as a very interesting “covered call” ETF that currently yields 10.5%. Have shares been volatile this year? With a 4% drop from peak to trough, shares of the HDIV are not immune to market-wide spills. That said, the difference is that you’re collecting a fat distribution every month. Perhaps the monthly check you’ll get is larger than the quarterly ones you get from your favourite dividend stocks.
Either way, the HDIV is a fund of funds, with “modest” 25% leverage and a supercharged yield. Indeed, leveraged ETFs aren’t for everyone, and while I’m against most, I think 25% is reasonable for risk-takers who want income and capital upside. In short, you’re not taking on 100% or 200% (double or triple) leverage like with some of the other securities out there. Of course, leverage, even a mild amount, means a steeper drop on the way down. So, investors should be aware of the downside risks compared to non-leveraged covered call comparables.
Personally, I think 25% is just the right amount to give a covered call ETF enough of an upside jolt. Indeed, the covered call strategy on its own caps upside, which can be less than ideal for those who want the best of both worlds.
Hamilton Enhanced Utilities ETF
At the same time, Hamilton Enhanced Utilities ETF (TSX: HUTS) stands out as a great bet with its 6.5% yield. It’s one of the funds within the HDIV and aims to target steady Eddie utility (and telecom) stocks with that same bit of 25% leverage. Indeed, targeting a safe, defensive sector of the market with a bit of leverage stands out as intriguing.
Of course, what do you get when you mix risk (25% cash leverage) with defensiveness (utilities exposure)? A nice balance that might be a better fit for some of the more aggressive income investors out there who are willing to deal with more volatility for a shot at more gains and, perhaps most importantly, income.
Will these “enhanced” income ETFs be for everyone? Probably not, especially for a retiree who’s easily rattled by market chop. But I think the ETFs are worth a closer look if you’re fed up with traditional, lower-yielding solutions (dividend stock ETFs) or those with a lower upside ceiling (think covered call ETFs with no cash leverage).
