The YieldMax MSTR Option Income Strategy ETF (NYSEARCA:MSTY) has garnered significant interest among income-focused investors due to its extraordinarily high dividend yields, often exceeding 100% annually. These yields are driven by its covered call strategy on the volatile stock of Strategy (NASDAQ:MSTR), a company heavily invested in Bitcoin (CRYPTO:BTC). 

Although some investors have focused on MSTY’s “double dividend” payment in August, this should just be ignored as background noise in determining whether the exchange-traded fund (ETF) is right for your portfolio. More important is whether MSTY’s payout is sustainable long-term and whether chasing these dividends is a worthwhile investment strategy or a risky distraction.

A Turbocharged Dividend Stock

MSTY’s dividends are generated through premiums from selling call options on MSTR, a stock known for its volatility due to its substantial Bitcoin holdings. These premiums, combined with the fund’s synthetic long exposure, have resulted in monthly distributions ranging from $1.33 per share to $4.42 per share over the past year, with this month’s payment coming in at $1.4707 per share. That equates to a 30-day SEC yield of 1.76%. 

The YieldMax distribution schedule confirms that MSTY, as part of Group D, will make payments on August 1 and August 27, creating the perception of a “double dividend” within the same month. However, this is not a true doubling of payouts, but rather a quirk of the fund’s revised distribution schedule, which spreads payments across four groups (A, B, C, and D) to provide more frequent income streams. 

Investors on the Reddit r/YieldMaxETFs subreddit speculating on payouts as high as $2.50 or more in August appear overly optimistic, as historical data shows dividends fluctuating significantly without a consistent pattern of extraordinary increases. For instance, May’s $2.37 per share dividend was followed by the lower payment in June, reflecting the fund’s sensitivity to MSTR’s price movements and option premiums.

The long-term outlook for MSTY’s dividends suggests a higher likelihood of decline than sustained growth. 

Risk and Volatility Are Part of the Package

The fund’s net asset value (NAV) is eroding due to large monthly distributions, which often include a significant return of capital — 100% in some cases, as seen in other YieldMax ETFs like YieldMax S&P 500 0DTE Covered Call Strategy ETF (NASDAQ:SDTY). This return of capital reduces the fund’s NAV, potentially leading to significant losses for investors over time. Additionally, an increase in shares outstanding to approximately 226 million dilutes MSTY’s per-share value, making it even harder to sustain current dividend levels.

The reliance on MSTR’s volatility and Bitcoin’s price movements introduces additional risks, as a decline in either could shrink option premiums,and reduce payouts. Regulatory uncertainties surrounding Bitcoin and market volatility could also impact MSTR’s performance, indirectly affecting MSTY’s ability to maintain high yields. 

While the Aug. 1 and Aug. 27 payments provide short-term income, the lack of guaranteed distributions and the fund’s structural limitations make long-term dividend growth unlikely.

Speculating on MSTY’s August double dividend or its overall yield is a high-risk strategy that may not be worth the effort for most investors. The allure of two payments in August is tempered by the reality that these are part of a restructured schedule rather than an increase in total annual distributions. 

The ETF’s high yields are attractive for aggressive income seekers, but the combination of NAV erosion, dividend variability, and exposure to Bitcoin’s volatility makes MSTY a risky investment. 

How to Approach MSTY

Now, I’m not a financial planner or tax professional, so these are just my opinions, but for those with a high risk tolerance, MSTY could serve as a small, tactical position in a diversified portfolio. However, for investors seeking stability or long-term growth, more predictable dividend ETFs like JPMorgan Nasdaq Equity Premium Income ETF (NASDAQ:JEPQ) or NEOS S&P 500 High Income ETF (CBOE:SPYI) are better options.

Here is some practical advice for investors thinking of investing in MSTY.

• Monitor Performance Trends: Track MSTY’s dividend announcements and performance over the next quarter to identify patterns, especially around the August distributions.
• Diversify Your Portfolio: Limit MSTY to a small portion of the speculative section of your portfolio to mitigate risks tied to its volatility and NAV erosion. Balance it with stable dividend payers like Verizon (NYSE:VZ) or Coca-Cola (NYSE:KO).
• Research Financial Health and Dividend History: Review MSTY’s prospectus and MSTR’s financials, focusing on Bitcoin’s impact and the ETF’s payout sustainability. Check 19a-1 notices for distribution composition details.
• Stay Informed with Alerts: Set up news and earnings alerts for MSTY and MSTR via platforms like Yahoo! Finance to stay updated on developments affecting dividends.
• Test with a Small Position: Start with a modest investment in MSTY to gauge its performance and minimize exposure while assessing its income potential.

Key Takeaway

While MSTY’s August double dividend offers short-term income potential, its long-term sustainability is questionable, making it a risky, speculative play rather than a reliable investment. Diversification, diligent research, and cautious positioning are essential for investors considering MSTY.

 

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