Several exchange traded funds already track dividend aristocrat indexes, and that group became a little bigger Tuesday with the debut of the Cboe Vest S&P 500 Dividend Aristocrats Target Income ETF KNG.
The Cboe Vest S&P 500 Dividend Aristocrats Target Income ETF is the first to be issued by Cboe Vest Financial LLC, the asset management unit of Cboe Global Markets. KNG is not the standard index-based dividend ETF, as this new fund aims to deliver income and growth via a unique overwriting strategy.
KNG “is comprised of an equally weighted portfolio of well-known 'aristocrats,' S&P 500 stocks with a history of 25 years of consecutive dividend growth. A monthly call overwrite strategy applied to a small part of the stock holdings converts a portion of the future growth of each stock into current income,” according to a statement.
Covered Calls
KNG goes beyond the income-generating capabilities of dividend stocks by adding covered calls to the mix.
The new ETF “targets portfolio yield, pursuing a strategy that seeks to convert a portion of the potential upside performance of dividend growers into current income,” according to CBOE. “The strategy seeks to provide annualized income from stock dividends and option premiums of approximately 3 percent over the annual dividend yield of the S&P 500 Index and generate price returns that are proportional to the price appreciation of the S&P 500 Index, before fees and expenses.”
The S&P 500 Dividend Aristocrats Index is almost 13 years old and has produced average annualized returns of 12.58 percent over the past decade, according to S&P Dow Jones Indices. The benchmark is home to 53 stocks, 45.5 percent of which hail from the consumer staples and industrial sectors.
Growth And Income
“The capital appreciation potential from holding dividend growth stocks supports the growth component of the strategy, while the premiums collected from sale of the options, in addition to the dividend payments, support the target income goal,” said KNG's issuer.
The new ETF charges 0.75 percent per year, or $75 on a $10,000 investment.
Other ETFs tracking dividend aristocrats indexes include the SPDR S&P Dividend ETF SDY and the ProShares S&P 500 Dividend Aristocrats ETF NOBL.
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