Tesla (NASDAQ:TSLA) stock doesn’t pay a dividend, but there’s actually a new ETF that’s indirectly based on Tesla stock and offers a terrific monthly dividend (currently yielding nearly 48% on a forward basis). However, there may be a price to pay for that yield because the YieldMax TSLA Option Income Strategy ETF (NYSEARCA:TSLY) won’t provide complete exposure to the upside in Tesla stock. Still, I am bullish on TSLY stock because I like Tesla and big dividends, so this seems like a great combination.
I’ve been hearing about TSLY stock on social media a lot lately, and I’m excited to discuss this controversial investment avenue. When you find out how much the stock distributes to its shareholders, you might be shocked.
Alternatively, you may be tempted to back up the truck and buy as many TSLY shares as possible. Hold your horses, though, as there are notable benefits and drawbacks to owning the YieldMax TSLA Option Income Strategy ETF. So, let’s dive in without any further ado.
The Pros and Cons of the TSLY ETF
As I mentioned earlier, Tesla stock doesn’t pay a dividend. On the other hand, the TSLA share price has appreciated greatly over the past few years (though there have been negative years, like 2022).
If you’re more of an income-focused investor, then you might be frustrated that Tesla doesn’t pay a dividend. On the other hand, if share-price momentum is your highest priority, then it’s probably fine to just buy and hold TSLA stock if you like the company.
Let’s back up for a moment, though. What exactly is the YieldMax TSLA Option Income Strategy ETF, anyway?
I won’t get into the complicated details of this, but in a nutshell, the TSLY fund doesn’t actually hold any Tesla common stock shares. Instead, it uses a synthetic covered call strategy (buying a call option and selling a put option). This strategy seeks to track the performance of Tesla stock as closely as possible while also generating income, and that’s where the capital for the dividend distributions comes from. The fund also holds U.S. Treasury bonds, but that’s only a minor source of capital.
There’s a major drawback to this strategy, though. If you know about options, then you’ll know that selling covered calls will bring you some income, much like a dividend (and the TSLY fund actually pays investors the covered-call income in the form of a dividend). However, selling covered calls also caps (i.e., limits) how…