Overview and analysis of DIVO

AMPLIFY CWP ENHANCED DIVIDEND INCOME ETF

DIVO is an actively managed ETF of high-quality large-cap companies with a history of dividend growth, along with a tactical covered call strategy on individual stocks.

From the fund’s website:
DIVO’s Selection Methodology-
Dividend Growers – managed with a strong emphasis on owning high-quality large-cap companies with historical dividend and earnings growth
Sector Allocation – relatively balanced among the traditional 10 S&P sectors
Security Selection – consists of 20-25 stocks, which are screened and adjusted according to attributes including market cap, management track record, earnings, cash flow, and return on equity
Tactical Covered Call Writing – covered call options are written on individual stocks on a tactical basis (not an index approach)

The strategy seeks to provide gross annual income of approximately 2-3% from dividend income and 2-4% from option premium.

Highlights:
Fund started 12/14/16
Expense Ratio: 0.55%

Current Yield: 4.99%

Payment Dates: Monthly, has made monthly distributions since 08/2018 and was previously quarterly since inception

Dividend Growth:

3 year – 4.64% CAGR
Dividend payment is variable each month and is paid at the end of the month. Current year payouts are:
Jan – $0.15249
Feb – $0.15267
Mar – $0.15703
Apr – $0.15431
May – $0.15741
Jun – $0.14779
Jul – $0.15258
Aug – $0.15317
Sept – $0.14900
Oct – $0.14824
Nov – $0.14992

Taxes:

For 2021, distributions have been 73% Return of Capital (ROC) and 27% Net Investment Income (NII). ROC is not taxed, but reduces your cost basis (so if you sell you will have higher capital gains at that time, but if you never sell then no tax. NII is taxed either at your current income rate or long term capital gains, depending on the source of the NII.

Investments held in the fund:
25 holdings

Top 10 are 52.50% of the fund
UNITEDHEALTH GROUP INC 6.11%
APPLE INC 5.81%
CHEVRON CORP 5.70%
MICROSOFT CORP 5.50%
MCDONALDS CORP 5.32%
HOME DEPOT INC 5.32%
PROCTER AND GAMBLE CO 5.02%
GOLDMAN SACHS GROUP INC 4.65%
JPMORGAN CHASE & CO. 4.63%
HONEYWELL INTL INC 4.44%

Sectors Weight:
Technology 16.40%
Industrials 15.10%
Health Care 14.00%
Consumer Cyclical 11.90%
Financials 11.60%
Consumer Defensive 6.30%
Basic Material 11.90%
Energy 5.40%

Utilities 3.00%
Communication 2.60%
Cash & Equivalents 8.30%

Returns:
1-yr – 33.81%
3-yr – 16.31%
Since inception – 14.62%

Commentary:
This ETF is unique compared to the other income ETFs available (JEPI, QYLD, XLYD, NUSI) in that they only do covered calls on individual holdings, not an index or all the holdings. This allows the managers to pick and choose the appropriate time to write the calls and the appropriate time to just hold the underlying stock. This allows for capital appreciation, retention of the dividend payment, and also allows for higher distributions through the covered call premiums. The other funds write at the money calls on an index so there is very little capital appreciation available. For instance, the popular QYLD has had a capital appreciation of 2.76% total over the past 5 years.

This ETF is very concentrated, with only 25 holdings right now. This might concern some as if one of the holdings drops, it could affect returns. I don’t see this as a major issue as the holdings are top-quality dividend growth stocks.

The total return is not keeping up with the S&P 500 lately but the dividend income received is nearly 4x the S&P. If you are looking for income, are comfortable with covered calls, and still want some capital appreciation, this fund appears to be very solid. In fact, Morningstar rates this fund 5 Stars, which is their highest rating.

Disclosure:

I own this fund