APLY vs. VYM: Apple-Linked Big Yield or Blue-Chip Dividend Strength

There have been a number of intriguing ETFs that have popped up in recent years that allow investors to bet on their favorite stocks while getting paid a fatter dividend for doing so. Indeed, one of the major downsides of investing in a name like Apple (NASDAQ:AAPL | AAPL Price Prediction) is the rather small dividend yield. Despite plunging into a bear market, the yield, currently at 0.52%, remains less than half the yield currently commanded by the S&P 500. Indeed, Apple’s dividend isn’t quite satisfying, especially for investors seeking to maximize their investment income. Fortunately, YieldMax has a solution for such risk-tolerant investors who want a higher-yielding way to play the iPhone maker using options.

Enter the YieldMax AAPL Option Income Strategy ETF (NYSEARCA:APLY), which was designed to have a much larger dividend through a synthetic covered call strategy. Indeed, the APLY and its like (as well as various options strategies) can be a tad on the confusing side for most beginner investors, but such ETFs have increased in popularity of late, especially among younger investors looking to play certain high-volume stocks from a yield-heavy angle. For a new investor, the big question is whether it’s better to go with such an exciting and unique YieldMax ETF or if sticking with a traditional ETF (that owns stakes in businesses) is a better move. Let’s dive in.

Key Points in This Article:

• At the time of writing, APLY is paying an enormous dividend yield of nearly 32%.
• VYM’s yield pales in comparison, but its inherent safety makes it a strong consideration.
• Should ETFs be a part of your investment strategy? Why not meet with a financial advisor near you for a complete portfolio review? Click here to get started today. (Sponsored)

The APLY’s Yield Is Substantial, but It’s Subject to Fluctuations

Upon first glance, the APLY may seem like an extraordinary bet, with its 31.9% distribution rate at the time of writing. As is the case with covered call ETFs, though, the yield isn’t going to stay in one spot over time. The distribution is going to fluctuate, perhaps wildly, based on a number of external factors. If you’re fine with uncertainties hovering around the distribution rate, the APLY may still be a worthy investment. However, it is worth noting that the ETF does not own shares of Apple directly. As such, its stock chart bears no resemblance to that of AAPL shares.

Personally, I think the APLY ETF, though intriguing, is a far riskier, choppier bet than a more diversified traditional ETF that owns dozens of individual stocks directly. And for an investor who’s weighing APLY (remember, there’s single-stock risk here) over a diversified ETF, like the Vanguard High Dividend Yield Index Fund ETF (NYSEARCA:VYM), I do think the latter may be a better choice for beginners who don’t already have a portfolio that’s well diversified across a number of stocks across different sectors.

In my view, the APLY ETF and its like were designed for income investors with strong stomachs who understand how options work and how they can enhance an otherwise diversified portfolio. At the end of the day, beginner investors aren’t going to understand derivative products very well from the get-go. And that’s completely fine. There’s a time and a place for options-based ETFs, and as one gains a better understanding of complex strategies involving options, it can make sense to go after a name like the APLY. 

The VYM Is an Instant Portfolio Diversifier

The Vanguard High Dividend Yield Index Fund ETF is far easier to understand, with a distribution yield that’s fairly predictable. Unless more than a handful of firms slash their payouts, the VYM’s payout isn’t going to fluctuate by all too much. There’s no premium income from options involved, just plain, old-fashioned dividends from hundreds of well-established blue-chip companies.

With a yield of 2.86%, though, the VYM isn’t going to satiate income-oriented investors. In any case, I view VYM as the safer, steadier, and easier-to-understand bet for beginner investors who aren’t quite ready to jump into the wild world of options and options-based ETFs. So, between the APLY and the VYM, I’d have to go with the latter. Though, I wouldn’t be against nibbling on some APLY to complement an already diversified portfolio if you’d rather play Apple via options rather than owning the stock outright.