1 Practically Perfect Dividend Stock Yielding 9.6% Every Month

TXF turns Big Tech exposure into a monthly “paycheque” by using covered calls, but the yield isn’t guaranteed.

Key Points
  • TXF holds major North American tech giants and sells covered calls to generate extra income.
  • It now pays monthly, with a recent payout implying a high yield, but distributions can vary.
  • Covered calls can reduce volatility and add cash flow, but they can cap upside in big tech rallies.

Monthly income has a way of calming nerves. That’s the beauty of a strong dividend-style investment. It doesn’t need to make a big entrance, but just needs to show up, again and again — all while investors keep building wealth in the background. That said, investors also don’t want to miss out on the ever-growing tech industry, what with data centres and artificial intelligence (AI) continuing to take centre stage.

For Canadians who want tech exposure and regular cash flow, CI Tech Giants Covered Call ETF (TSX: TXF) looks close to the sweet spot.

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TXF

For investors hunting for one simple income holding, TXF can act like a single purchase with a basket of major technology names inside. That makes it useful for anyone who wants exposure to the companies driving artificial intelligence, cloud computing, chips, software, and digital advertising, without choosing one winner.

Technology stocks had a powerful run, helped by the AI boom and spending on data centres. Yet many income investors missed the ride because large tech companies often pay little or no dividend. TXF helps solve that problem. It holds North American technology giants and uses a covered call strategy to generate extra cash flow.

In April, CI Global Asset Management changed TXF’s distribution frequency from quarterly to monthly. That makes the fund more attractive for investors who like regular income. Its most recent distribution came in at $0.2895 per unit. Based on a recent market price, that works out to an annualized yield close to 9.6%, assuming the monthly payout stayed at that level.

Considerations

That’s the shiny part, but investors should pause before treating the yield like a promise. TXF pays variable distributions. This means the payout can move up or down depending on market conditions, option income, expenses, and portfolio returns. So, this isn’t like a guaranteed interest payment. It’s a higher-income strategy tied to stocks, and stocks can still bite.

So, how does that work? TXF aims to give investors cash distributions, capital appreciation potential, and lower volatility than owning the underlying tech stocks outright. It does that by holding a portfolio of large technology companies and writing covered calls on part of the portfolio. CI said the strategy writes calls on about 25% of the portfolio each month. That leaves most of the holdings exposed to potential gains, while adding income from options.

If tech keeps rising, investors can still participate. If tech chops around, the option income can help soften the ride. If tech falls hard, TXF can still fall too, though income may reduce some of the pain. It’s not magic, just a tradeoff. The key tradeoff involves upside. Covered calls can cap some gains when markets surge. So, if investors believe tech stocks will roar higher without interruption, a plain tech exchange-traded fund (ETF) could do better. TXF works best for investors who want a blend of income and growth rather than maximum upside.

Foolish takeaway

Even with those risks, TXF looks appealing for the right investor. It gives monthly income, tech exposure, and a cleaner way to turn growth stocks into cash flow. Inside a Tax-Free Savings Account (TFSA), those monthly distributions can compound without tax drag. Retirees could use them for spending. Younger investors could reinvest them and let the income buy more units. Either way, $7,000 could bring in ample income right now.

COMPANYRECENT PRICENUMBER OF SHARESANNUAL DIVIDENDANNUAL TOTAL PAYOUTFREQUENCYTOTAL INVESTMENT
TXF$28.11249$2.69$669.81Monthly$6,999.39

No dividend investment is perfect. But TXF gets close for investors who want tech growth with a paycheque attached. The yield may change, and the ride won’t always feel smooth. Yet for Canadians seeking monthly income from some of the market’s most powerful companies, TXF looks like a very practical place to start right now.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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