New BMO Covered Call Utilities ETF (ZWU)
I don’t know how this one slipped under my radar but BMO launched a new covered call ETF on one of my favourite sectors – utilities. If you are a regular to my blog you know that I believe that the only way to make money in this market is by owning dividend paying stocks with a call-write strategy for extra income and downside protection.
Utilities are a defensive sector and as the European debt problem continues to be get bigger and US unemployment stays close to 10%, this is where I want to be. Currently ZWU has a 7.2% yield made up of dividends and option premium that they distribute to unit holders monthly.
BMO describes the ETF as follows “Allows investors to access a portfolio of widely recognized Canadian utilities companies, which include telecommunications and pipeline companies, while potentially earning call option premiums.”
The companies that make up the ETF are all companies that I’m sure you are familiar with. Warren Buffet always states that you need to understand the business you are investing in and utilities are something we all get. Utilities are also something that if Europe explodes and we go into another down turn – we’ll still need to use their services.
Check out the ZWU top holdings:
Telecoms, energy, and utilities also all pay a quality dividend as a sector and as more and more of our government and corporate pensions seek income to pay out their retirees – they’ll be gobbling up these companies. Tweens will keep sending more and more texts on their SuperPhones, we’ll need to use gas to drive and electricity or natural gas in our homes in the foreseeable future.
Having a constant demand for larger, stable, dividend paying companies is a great backstop to have in such volatile markets. Utilities have also been one of the only sectors to increase their dividends being paid to investors.
Volatile markets are also key to increase the price of the premiums that this ETF collects when it sells the call options on the entire portfolio. As long as there is fear in the market, you’ll collect a juicy yield. And if the market takes a 10-15% drop, the sold calls will soften the drop and let you get “paid to wait” for the market to go back up.
Keep loving your covered call portfolio and it’ll love you back with a great yield,
Dave
