Building a Monthly Dividend ETF Portfolio
Top 5 Monthly Dividend ETFs by Asset Class
How to Build a Portfolio
The stock market has already moved above the highs seen before the U.S.-Iran war. However, concerns remain, including inflation risks, uncertainty surrounding U.S. tariff policy, and ongoing debate over the profitability of the artificial intelligence industry. Even amid valuation burdens and lingering market concerns, the traditional way to stay invested in the capital market is through income-generating assets that pay dividends and through diversified portfolio construction.
The number of ETFs listed on the Korean stock market has reached 1,099, far exceeding the 835 constituent stocks in the KOSPI Index. Among them, 173 are classified as monthly dividend ETFs, enough to build a diversified portfolio. Considering that the Bank of Korea’s base rate stands at 2.5%, an ETF portfolio offering an annual distribution yield of more than 5% can be considered meaningful.
These products can also be categorized by asset class. There are 94 monthly dividend ETFs based on equities, 28 based on bonds, and 13 based on real estate assets such as REITs. The rest fall into bond-mixed or multi-asset categories.
The ETFs with the highest annual distribution yields are found in the bond-mixed asset class. SOL Palantir Covered Call OTM Bond Mixed (0040Y0) and SOL Palantir U.S. Treasury Covered Call Mixed (0040X0) posted the highest yields at 28.61% and 23.27%, respectively. They were followed by KODEX Tesla Covered Call Bond Mixed Active (475080) and RISE Tesla U.S. Treasury Target Covered Call Mixed (0013R0) with yields of 15.82% and 15.70%. A common feature among these high-yield ETFs is that they generate income by selling call options on highly volatile large-cap growth stocks such as Palantir (PLTR) and Tesla (TSLA), or by selling call options on long-term U.S. Treasury instruments.
Among monthly dividend ETFs based on equities, products using a daily covered call strategy accounted for a large share. KODEX U.S. Nasdaq 100 Daily Covered Call OTM (494300), RISE U.S. Tech 100 Daily Fixed Covered Call (491620), and RISE U.S. AI Value Chain Daily Fixed Covered Call (490590) recorded distribution yields of 19.55%, 18.44%, and 16.66%, ranking high within the equity category. This is because a strategy that sells call options every day collects more option premium than the more common strategy of selling them once a month.
There are also monthly dividend ETFs based on bonds. These typically use a strategy of selling call options on U.S. ETFs composed of long-term U.S. Treasury bonds with maturities of 20 years or more. Representative examples are SOL U.S. 30-Year Treasury Covered Call (Synthetic) (473330) and TIGER U.S. 30-Year Treasury Covered Call Active (H) (476550). Their annual distribution yields were 13.36% and 12.92%, respectively. The main difference between the two is that the SOL ETF is exposed to the U.S. dollar, while the TIGER ETF hedges against exchange-rate fluctuations.
There are also real estate ETFs represented by REITs. Even without a covered call strategy, REITs themselves tend to offer relatively high dividend yields. TIGER REITs Real Estate Infrastructure (329200) and KODEX Korea Real Estate REITs Infrastructure (476800) were found to have high yields of 8.37% and 7.85%, respectively. Given the recent issue of certain overseas real estate-backed REITs filing for corporate rehabilitation, it is important to look for ETFs composed of domestic office-based REITs.
Most monthly dividend ETFs with high distribution yields are products using a covered call strategy. This is because traditional income sources such as interest and dividends alone make it difficult to generate monthly distributions of around 1%. Therefore, rather than fearing that selling call options is inherently risky simply because it involves derivatives, investors should recognize it as a new source of income and examine it more closely.
The traditional mix between stocks and bonds is 60 to 40. In times when it is difficult to judge the market, constructing a portfolio of monthly dividend ETFs based on this ratio can be another viable investment strategy. However, investors should distinguish the strategic differences among ETF products and keep in mind that while covered call strategies can provide high distribution yields, they may also limit part of the upside potential of the underlying assets.