I'm Passing On The YieldMax ETFs – 4 Monthly Pay Stocks With 11% and Higher Yields Will Do Fine

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Investors love dividend stocks, especially those with ultra-high yields that pay monthly, because they provide a substantial income stream and offer significant total return potential. Total return includes interest, capital gains, dividends, and distributions realized over time. In other words, the total return on an investment or a portfolio consists of income and stock appreciation. Let’s examine the concept of total return. If you purchase a stock at $20 that pays a 3% dividend ($0.60 per share) and the price rises to $22 in a year, your total return is ($22 + $0.60 – $20) / $20 = 13%. This combines the price appreciation and the dividend received.

24/7 Wall St. Key Points:

• Covered call Exchange Traded Funds with massive yields are the current rage
• While they offer huge dividends, covered call and credit spread strategies can limit growth
• Typically, when funds seem too good to be true, they often are, and can melt down
• Should ETFs be a part of your investment strategy? Why not meet with a financial advisor near you for a complete portfolio review? Click here to get started today. (Sponsored)

While the concept of ETFs that use a covered call format is not new, some of the YieldMax funds, which are very popular, pay gigantic and seemingly impossibly high yields. Selling covered calls against long positions, or stocks that you own, has always been a relatively conservative way to capture additional option premium income with dividend income. It’s essential to recognize that YieldMax ETFs, while targeting high income through options strategies, including credit spreads, carry some significant risks, including potential declines in asset value, which can offset the high dividend yields. The 30-Day SEC Yield, which reflects net investment income excluding option income, is often much lower than the stated dividend yield.

In addition, if a significant tail risk event were to occur, such as another 9/11 or a similar event, the underlying stocks could be severely impacted, and the option premiums would likely collapse. The YieldMax fund family has brought in billions of assets under management, and for younger investors seeking passive income, they are noteworthy ideas. However, for more mature investors and seniors, there are better options that offer substantial dividends and also pay monthly distributions.

We screened our 24/7 Wall St. monthly pay ETF research database and identified four top funds that appear to be great ideas now.

AGNC Investment

AGNC Investment provides private capital to the U.S. housing market. This company has paid solid monthly dividends for years. AGNC Investment Corp. (NASDAQ: AGNC) provides private capital to the United States housing market, enhancing liquidity in the residential real estate mortgage markets and, in turn, facilitating home ownership in the United States.

The Company invests primarily in Agency residential mortgage-backed securities (Agency RMBS) on a leveraged basis.

These investments consist of residential mortgage pass-through securities and collateralized mortgage obligations for which a United States Government-sponsored enterprise guarantees the principal and interest payments.

AGNC buys debt from the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). Together, Fannie Mae and Freddie Mac are known as the GSEs, or Government-Sponsored Enterprises. Alternatively, AGNC may purchase debt from a United States Government agency, such as the Government National Mortgage Association (Ginnie Mae).

Barings BDC

Barings BDC primarily makes debt investments in middle-market companies. This business development company is a leader in its industry and pays a substantial dividend. Barings BDC, Inc. (NYSE: BBDC) is a publicly traded, externally managed investment company elected to be treated as a business development company under the Investment Company Act of 1940.

It seeks to invest primarily in:

• Senior secured loans
• First lien debt
• Unitranche
• Second lien debt
• Subordinated debt
• Equity co-investments
• Senior secured private debt investments in private middle-market companies operating across various industries

The company specializes in:

• Mezzanine
• Leveraged buyouts
• Management buyouts
• ESOPs
• Change of control transactions
• Acquisition financings
• Growth financing
• Recapitalizations in lower-middle market, mature, and later-stage companies

Barings BDC invests in manufacturing and distribution, business services and technology, transportation and logistics, and consumer products and services. It invests in the United States and companies with EBITDA of $10 million to $75 million, typically in private equity sponsor-backed investments.

BlackRock Innovation and Growth Term Trust

This fund has lowered the dividend, which is a huge positive for shareholders who buy now. BlackRock Innovation and Growth Term Trust (NYSE: BTX) has investment objectives to provide total return and income through a combination of current income, current gains, and long-term capital appreciation. The Trust will invest, under normal market conditions, at least 80% of its total assets in a combination of equity securities issued by U.S. and non-U.S. technology and privately held companies.

BTX holds well-known tech stocks, including Spotify Technology SA (NASDAQ: SPOT) and Reddit Inc. (NYSE: RDDT). The largest position is in AI chip giant NVIDIA Inc. (NASDAQ: NVDA). It also holds a collection of private-equity holdings that give it hedge fund-type qualities. Think of this fund as a Cathie Wood-style new technology vehicle with a massive dividend yield.

Trading at a small 2% discount to the fund’s net asset value, those looking for a big monthly income with growth potential should snap up these shares now.

PennantPark Floating Rate

PennantPark invests in middle-market companies in the U.S. Almost overlooked by Wall Street, this is another business development company with a massive monthly dividend yield. PennantPark Floating Rate Capital Ltd. (NYSE: PFLT) seeks to invest in floating-rate loans through private, thinly traded, or small-cap public middle-market companies.

It primarily invests in the United States, and to a limited extent, in non-U.S. companies. The fund typically invests between $2 million and $20 million.

The fund also invests in:

• Equity securities
• Preferred stock
• Common stock
• Warrants or options received in connection with debt investments or through direct investments

It primarily invests between $10 million and $50 million in senior secured loans and mezzanine debt. It seeks to invest in companies not rated by national rating agencies.

The fund invests 30% in non-qualifying assets like:

• Investments in public companies whose securities are not thinly traded or do not have a market capitalization of less than $250 million
• Securities of middle-market companies located outside of the United States
• High-yield bonds
• Distressed debt
• Private Equity
• Securities of public companies that are not thinly traded
• Investment companies as defined in the 1940 Act

Under normal conditions, the fund expects at least 80 percent of its net assets plus any borrowings for investment purposes to be invested in floating-rate loans and investments with similar economic characteristics, including cash equivalents invested in money market funds. It expects to represent 65 percent of its portfolio through senior secured loans.

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