How Tesla Investors Are Generating Weekly Income With TSLW Without Selling a Share of TSLA

Tesla (NASDAQ:TSLA | TSLA Price Prediction) doesn’t pay a dividend, and it probably never will, given that investors would probably prefer that Elon Musk reinvest in some of his new, ambitious ideas.

For income investors, it might make sense to own Tesla shares alongside some other dividend-paying securities in a “barbell” portfolio of sorts. For those who want income to come from a Tesla-derived security, though, there’s now a fairly popular option with the Roundhill TSLA WeeklyPay ETF (TSLW).

Indeed, the WeeklyPay ETF series of products might be tempting for those investors who want to get paid as often as possible and wouldn’t mind dealing with a plunging share price for that supercharged distribution rate. Today, the rate sits at just north of 61%. That’s massive, but there is no magic going on here. Behind the scenes, Roundhill is making some active moves in the background to move the return towards the rate side.

A huge rate, but mind the negative momentum in the shares

Of course, the distribution rate is moving quite quickly. What’s most important for investors is the total returns, as I’ve explained in prior pieces covering ETFs with massive double-digit percentage yields.

Really, any security that has a big, fat dividend ought to be judged not on the size of the distribution rate (or dividend yield) but on the basis of total returns. While I understand who Roundhill is trying to cater to with such a product, I must say that there’s a lot going on behind the scenes, perhaps too much for many newer investors to understand.

For such an active ETF, a high expense ratio is a given, and for the Roundhill TSLA WeeklyPay ETF, it’s at 0.99% — surprisingly low for an ETF that involves a lot of labor on the part of the active managers. In any case, though, the ETF is just over a year old, so if you haven’t heard of the name, you’re definitely not alone. As to whether such WeeklyPay ETFs are going to catch on and surge in popularity, though, remains the big question.

Talk about a supercharged distribution

Perhaps the wild card for this particular ETF lies in the targeting of 120% of Tesla’s weekly performance. Just because there’s a target, though, does not mean you’ll get any guarantees. Look at the ETF fact sheet, and you’ll see that in bold.

Either way, the security sounds great for the Tesla bulls who do believe that Elon Musk’s electric vehicle (and soon, robotics) empire is undervalued, especially after the recent slump in shares and the increased focus on the man’s other company, Space Exploration Technologies (NASDAQ:SPCX), which recently had its IPO and could continue to outshine Tesla for quite some time.

Also, for those looking to play a Tesla-SpaceX merger, perhaps Tesla is a more compelling option than Elon Musk’s space company now that it’s running into a bit of turbulence after taking off just over one week ago.

For investors who understand and accept the downside risks (all you have to do is look at the volatility in shares of the Roundhill TSLA WeeklyPay ETF), as well as the trade-offs (a 0.99% expense ratio), the Roundhill TSLA WeeklyPay ETF might make sense as a trade to bring up with one’s personal financial adviser.

The bottom line

Personally, I’m a bigger fan of some of the other, more diversified RoundHill ETFs. For those seeking targeted, tactical exposure to Tesla with income as the major payoff, though, I won’t stop you from punching a ticket.

This ETF makes for a very wild ride, and one that’s too much for my stomach to handle. In my humble opinion, Tesla itself is already quite a risky stock with a high beta of 1.80. For the biggest of Tesla bulls, expecting big things from the EV maker in the second half and would like to get paid weekly, perhaps the ETF might sound like the best thing since sliced bread.