QQQI’s Tempting 14% Dividend: Why a Million-Dollar YOLO Isn’t So Simple

Achieving double-digit annual dividend yields would be difficult if you’re only picking individual stocks. However, certain exchange traded funds (ETFs) make it possible to target yields of 10% or even more.

If you have a lot of cash sitting around, you might dream about pouring it all into a high-yield fund and collecting the cash payments. Among the most enticing of the big-yield ETFs is the

NEOS ETF Trust NEOS Nasdaq 100 High Income ETF (NASDAQ:QQQI), and it’s definitely worth a look.

On the other hand, skeptical folks might wonder whether the QQQI ETF’s yield is too good to be true. To get to the bottom of this issue, we’ll dissect the NEOS Nasdaq 100 High Income ETF right now and weigh its benefits against the fund’s risks.

NASDAQ Exposure, but With a Twist

You’re probably familiar with the NASDAQ 100 stock index, which includes a slew of heavy hitters in the technology sector. A few prominent examples of NASDAQ 100 members are Apple (NASDAQ:AAPL | AAPL Price Prediction), NVIDIA (NASDAQ:NVDA), Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), Meta Platforms (NASDAQ:META), and Broadcom (NASDAQ:AVGO).

These large-cap tech firms are famous and profitable, but they aren’t known for paying huge dividends. Consequently, yield hunters might not be interested in buying a basket of NASDAQ 100 stocks.

The NEOS NASDAQ-100 High Income ETF provides indirect exposure to roughly 100 stocks in the NASDAQ 100 index, but with a twist. To appease avid dividend collectors, the QQQI ETF uses sophisticated options-trading strategies, including writing covered calls, to produce extra income.

That extra income can be substantial. Currently, the NEOS NASDAQ-100 High Income ETF advertises an expected annualized distribution rate of 14.28%.

Think about trying to achieve a double-digit passive-income stream from the dividends of Apple, Microsoft, and the others. That wouldn’t be easy, but the NEOS NASDAQ-100 High Income ETF seemingly makes it simple to start collecting big cash payouts.

Not only that, but the QQQI ETF distributes the payments on a monthly basis. This allows for quicker payouts and more opportunities to reinvest the cash into more shares.

Don’t YOLO Into QQQI Yet

If you’re itching to start putting your money to work, then you might give in to the temptation to YOLO (You Only Live Once) your entire investment account into QQQI. This sounds reasonable because the payments are monthly with the NEOS NASDAQ-100 High Income ETF, so you’d start collecting your first distributions within a few weeks.

Just imagine if you committed an entire $1 million account toward shares of QQQI. If the distribution rate stays at 14%, that would equate to $140,000 worth of cash payments per year.

Here’s where it gets tricky, though. For one thing, there are no guarantees that the distribution rate of the NEOS NASDAQ-100 High Income ETF will stay at 14%. The annual yield could go up or down at any given moment.

Also, the NEOS NASDAQ-100 High Income ETF automatically deducts 0.68% worth of operating expenses per year from the share price (this is known as the expense ratio). This will drag down your profits over the long term. Consequently, you need to consider the drawbacks and risks if you’re getting ready to YOLO a large cash pile into the QQQI ETF.

QQQI’s Share-Price Shortfall

The 0.68% expense ratio of the NEOS NASDAQ-100 High Income ETF might not sound like a major problem, and you may be willing to accept the risk of a possible distribution-rate reduction. Those aren’t the only risks, however.

The NEOS NASDAQ-100 High Income ETF used covered-call writing strategies to generate passive income, but these same strategies tend to limit the fund’s share-price upside potential. The share price of the Invesco QQQ Trust (NASDAQ:QQQ), a simple NASDAQ 100 tracking fund, climbed around 20% over the past year:

Meanwhile, the NEOS NASDAQ-100 High Income ETF’s share price only increased by approximately 4%:

Sure, the QQQI ETF’s double-digit distribution rate easily beats QQQ’s dividend yield of around half a percent. When you compare the two funds’ share-price performances, however, you’ll see that the NEOS NASDAQ-100 High Income ETF’s big distributions come with trade-offs.

A More Prudent Plan

Clearly, QQQI’s sizable monthly payments aren’t as simple as they might seem to be. After mulling over the fund’s disadvantages, you’ll surely think twice about placing a million-dollar YOLO trade with the NEOS NASDAQ-100 High Income ETF.

Instead of going YOLO with QQQI, maybe you could just buy a few shares and then diversify with some safer, lower-yielding funds. That’s a more prudent approach to collecting those juicy but risk-laden monthly cash payouts with the NEOS NASDAQ-100 High Income ETF.