Pacer’s Dividend Multiplier ETF Pays 400% of the S&P 500’s Dividend, With a Catch Most Investors Don’t Notice

Income-based investors, such as retirees, often avoid high growth investments for (2) reasons:

• Capital risk due to market volatility
• Lack of income production

The S&P 500 is a perfect example of this. Vanguard S&P 500 (NYSE: VOO) is the most popular S&P 500 ETF. Its YTD return is 9.09%, and yield is an anemic 1.03%. 

Naturally, many financial institutions have put their ETF strategists to work devising new products that can both deliver returns that they monitor 24/7 while also appealing to the large retiree demographic and their pension, IRA, and 401-K nest eggs, which cumulatively are estimated to be worth $49 trillion. 

Pacer Financial was founded and is privately owned by Joe Thomson. Headquartered in Malvern, PA, Pacer started its catalog of Exchange Traded Funds in 2015. Their solution product to introduce to the market is the Pacer Metaurus US Large Cap Dividend Multiplier 400 ETF (NYSE: QDPL). At the time of this writing, it is delivering an 8.78% YTD return and a 5.04% yield – over 4X the S&P 500’s dividend yield. 

Pacer Metaurus US Large Cap Dividend Multiplier 400 ETF

QDPL’s use of S&P futures helps it to deliver 4X dividend income over VOO.

Launched on 7-12-2021, QDPL tracks the Metaurus U.S. Large Cap Dividend Multiplier Index 

The index, as designed, has two components: an S&P 500 Index component and a dividend component consisting of long positions in annual futures contracts that provide exposure to ordinary dividends paid on the common stocks of companies included in the S&P 500. 

In practice, QDPL tracks around 85-90% of the S&P 500, with the addition of S&P dividend futures to supply the income component attraction. The futures effectively multiply the dividend to achieve the 4X income advantage over the S&P 500’s intrinsic yield. Those dividend payouts are monthly. 

Top Holdings:

• Nvidia: 7.05%
• Apple: 6.20%
• Microsoft: 4.27%
• S&P Futures: 4.09%
• S&P Futures: 4.09%
• S&P 500 Future Dec. 2026: 4.0%
• Amazon: 3.37%
• Alphabet Class A: 3.01%
• Broadcom: 2.55%
• Alphabet Class C: 2.40% 

The Thorn Hiding In the Rose

While the 5.03% yield is a rosey attraction for investors looking at QDPL, its thorny ROC aspect may dampen that appeal to some of them.

The famous raconteur P.T. Barnum is attributed to creating the popular  phrase, “What’s the catch?”, back in 1950. In this case, the caveat in the fine print, so to speak, for QDPL is that the frontloading of the dividends eats into its upside gains in tracking the S&P 500. The net result is a lag that exceeds the 5.04% dividend. For example:

• VOO’s 1-Year Return is 24.36%, while QDPL’s is 22.71%. The differential equates to 6.77%.
• VOO’s 3-Year Return is 21.21%, while QDPL’s is 19.70%. The differential equates to 7.11%.

Bottom line for investors: QDPL offers some S&P 500 exposure along with attractive income, but they should go in with their eyes open and the awareness that they won’t exceed S&P 500 ETFs like VOO or SPY in total returns.

Due to its unusual structure, QDPL’s dividends are classified accordingly:

• Approximately 75% to 83% of the dividend is categorized as Return of Capital, so it can be treated as tax-free.
• 15% to 20% of the dividends are qualified dividends and are taxed at the lower long-term capital gains level.
• Any remaining dividends are taxed at the regular capital gains rate. 

So while QDPL’s dividends dampen its upside gain relative to VOO, their taxation tiers allows investors to still walk away with more cash in pocket than if the yields were coming from corporate bonds, as their coupon payments are treated as ordinary income by the IRS.