For as long as many people can remember, MSTY (NYSEARCA:MSTY) has been at the top of the YieldMaxETFs subreddit as the go-to for taking advantage of dividend yield. This has unquestionably been one of the hottest names in the market right now, at least if you are a “retail investor” or someone who spends a lot of time hunting subreddits for the next big thing.
Unsurprisingly, since Reddit is so popular with these topics, one Redditor posted their data-driven analysis in r/YieldMaxETFs, explaining that they had beaten the dip five out of six times and achieved some robust gains as a result. Would this work out similarly for others? It’s hard to tell, but it’s an interesting story about results.
Don’t Buy MSTY Before This Date!
The Redditor starts their data-driven analysis by talking about how many people told them “don’t buy MSTY before the ex-div date,” as the stock usually drops, which could wipe out any benefit from the MSTY dividend.
However, the Redditor, smartly, knew this might not be the real truth, so they decided to see for themselves. As a result, they took the time to create a six-month test that tracked the actual pre-dividend price, dividend amount, ex-dividend drop, and then where the stock would trade the next day.
The results are likely going to surprise most people in that the Redditor saw that in five out of the six months, buying MSTY before the dividend actually worked out better than waiting. Surprised? You are not alone, as many other Redditors thought this would be the case.
On the plus side, in a rare turn of events, the Redditor comment section on this post was overwhelmingly grateful for this study, as it provides people with a lot to think about. This is one of the big benefits of using a platform like Reddit to do research about investments, as there is a lot of groupthink.
The Numbers Don’t Lie
As far as the study itself, the last six months gave a lot of information and detail:
- Four out of the six months provided investors with a positive one-day return after the dividend, even with a price drop factored in.
- March was the standout as MSTY’s dividend yield for that month was 7%, and the share price surprisingly went up. The total one-day return was 12.77%, which is attention-grabbing.
- May was another big result month, with a dividend yield of 9.44%, and even with a stock dip, MSTY still showed a 7.77% total return.
- January and February were also strong, with combined returns averaging between 2% and 5% in just one single day.
- April was the only negative month accounted for per this Redditor’s analysis. The dividend yield was solid, but the post-dividend price drop only allowed for a negative 0.30% total return.
Why This Strategy Worked Out Well
From what I can tell, and if I were talking to this Redditor, I would emphasize what they already know: MSTY is an options-income fund that is thriving in volatile markets right now. As a result, you are receiving what is arguably a monster distribution, often in the 6-10% range. These are the kind of payouts that are difficult for short-term price drops to erase. This is exactly why I believe so many people are swearing by MSTY right now, as the dividend itself is a significant chunk of the total return equation.
I would also want to tell this Redditor something they also likely know, as well as market psychology is also playing a role here. This is something all Redditors playing around in investment or investment-adjacent subreddits should know. Income-focused investors are looking for a lower price as an entry point to take advantage of the next month’s payout, and so you have this “buy the dip for the income” mentality that is forming.
Of course, it’s also important to remember, and I would want to make sure this Redditor and others like them understand, that nothing about MSTY is guaranteed. All it will take is one market correction, a cut to the MSTY distribution, or a loss of interest in high-yield income strategies, and the pattern of passive income earning could be gone.
What to Keep in Mind for the Future
In the future, the way I would want to advise this Redditor, as a friend, is that no single investment should carry your portfolio. Diversification is key, and we all know it’s tempting to drive hard to earn double-digit monthly returns, but it’s all a recipe for disaster. Spreading your bets across multiple incomes (stocks, bonds, ETFs, t-bills, etc.) is the best way to go and minimize your risk.
It would also be great if this Redditor were to take advantage of the high distributions they are earning right now out of MSTY and invest it into other stocks that have better growth potential. DRIP investment is having a moment right now, and instead of buying more MSTY to keep riding this wave, think long-term and move money into less risky strategies that have long-term potential to grow wealth.
Lastly, don’t forget to reassess your investment strategy, at least quarterly, to look at how everything is performing and see what, if any, market adjustments you want to make based on changing market conditions.
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