If you want income that’s meaningfully higher than what traditional dividend stocks offer, you eventually have to look at more advanced exchange-traded funds (ETFs).
Some of these funds use leverage and covered call strategies to boost cash flow beyond what the underlying stocks naturally produce. The trade-off is higher fees, more moving parts, and greater downside risk.
So, before you click buy, you need to understand exactly how these structures work.
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How leverage and covered calls boost yield
The first tool is leverage. A 1.25 times leveraged ETF means that for every $100 in investor capital, the fund borrows roughly $25 to invest a total of $125. This magnifies exposure to the underlying portfolio.
If markets rise, gains are amplified. If markets fall, losses are amplified as well. The income from dividends and option premiums is also scaled up, but the added borrowing introduces higher volatility and interest costs.
The second tool is covered calls. In a covered call strategy, the ETF owns shares and then sells call options against those holdings. By selling the option, the fund collects a premium upfront.
That premium becomes distributable income. The downside is that if the stock rises above the strike price, the upside is capped. You trade some future growth for immediate cash flow.
Combine 1.25 times leverage with covered calls, and you get higher monthly distributions, but also capped upside and more sensitivity during market downturns.
Hamilton Enhanced U.S. Covered Call ETF
The first ETF I like is Hamilton Enhanced U.S. Covered Call ETF (TSX:HYLD), which currently pays a 12.59% yield.
HYLD is a fund of funds that holds a basket of Hamilton’s YIELD MAXIMIZER ETFs. Those underlying ETFs span broad U.S. equities and key sectors such as technology, financials, healthcare, energy, gold producers, and real estate investment trusts. The overall exposure loosely mirrors the sector mix of the S&P 500, but with an income-first design.
HYLD applies covered calls across its holdings and uses approximately 1.25 times leverage. The result is a high monthly distribution yield that has recently hovered in the low double digits. Most of the expected return comes from cash distributions rather than price appreciation.
In strong bull markets, HYLD will likely lag a plain S&P 500 ETF due to capped upside. In flat or moderately rising markets, the steady option premiums can make the income profile attractive.
Hamilton Enhanced Canadian Covered Call ETF
To balance U.S. exposure, consider Hamilton Enhanced Canadian Covered Call ETF (TSX:HDIV), which yields 10.55%.
HDIV focuses on Canadian equities and also uses a fund-of-funds structure built from Hamilton’s YIELD MAXIMIZER lineup. Given the structure of the Canadian market, sector exposure leans heavily toward financials, utilities, energy, and gold.
Like HYLD, HDIV uses covered calls and approximately 1.25 times leverage. This combination produces a high monthly distribution yield, typically in the double-digit range.
The trade-off is the same: reduced upside in strong rallies and amplified downside in sharp corrections. Investors need to be comfortable with volatility and understand that total return may trail a non-covered call benchmark over long bull cycles.
