{"id":1547,"date":"2023-10-13T21:34:33","date_gmt":"2023-10-13T21:34:33","guid":{"rendered":"https:\/\/infundpros.com\/news\/kng-enhancing-dividend-aristocrat-yields-with-covered-calls\/"},"modified":"2023-10-13T21:34:34","modified_gmt":"2023-10-13T21:34:34","slug":"kng-enhancing-dividend-aristocrat-yields-with-covered-calls","status":"publish","type":"post","link":"https:\/\/infundpros.com\/?p=1547","title":{"rendered":"KNG: Enhancing Dividend Aristocrat Yields With Covered Calls"},"content":{"rendered":"
\n

<\/picture>
<\/figcaption><\/figure>\n<\/p>\n

This article series aims at evaluating ETFs (exchange-traded funds) regarding the relative past performance of their strategies and metrics of their current portfolios. Reviews with updated data are posted when necessary.<\/em><\/p>\n

KNG strategy and portfolio<\/strong><\/h2>\n

FT Cboe Vest S&P 500\u00ae Dividend Aristocrats Target Income ETF<\/strong> (BATS:KNG<\/span>) was listed on 3\/26\/2018 and tracks the Cboe S&P 500 Dividend Aristocrats Target Income Index. It generates income by holding dividend stocks and selling covered call options on these stocks. KNG has 67 stock holdings, 66 positions in options, a trailing 12-month distribution yield of 5.03% and a total expense ratio of 0.75%.<\/p>\n

As described by First Trust,<\/p>\n

\n

The Index is composed of two parts: (1) an equal-weighted portfolio of the stocks contained in the S&P 500 Dividend Aristocrats Index (the \u201cAristocrat Stocks\u201d) that have options that trade on a national securities exchange and (2) a rolling series of short (written) call options on each of the Aristocrat Stocks (the \u201cCovered Calls\u201d). The S&P 500 Dividend Aristocrats Index generally includes companies in the S&P 500 Index that have increased dividend payments each year for at least 25 consecutive years and meet certain market capitalization and liquidity requirements.<\/span><\/em><\/p>\n<\/blockquote>\n

The fund invests exclusively in a subset of the S&P 500 index. The stock portfolio is reconstituted annually and rebalanced quarterly. Covered calls are written each month to expire the following month at a strike price close to the last daily closing price, on no more than 20% of the position in each stock.<\/p>\n

Unlike ETFs whose yields are only based on the distributions of securities held in their portfolios, KNG distribution yield has an unpredictable part. It depends on market conditions being favorable or not to a buy-write strategy, and on the execution of such a strategy.<\/p>\n

The top 2 sectors are consumer staples (24% of asset value) and industrials (22.6%). Other sectors weigh no more than 12%. Compared to the S&P 500 (SPY), the fund massively overweights these two sectors, along with materials, and to a lesser extent utilities and real estate. It underweights mostly technology, consumer discretionary, and ignores communication services.<\/p>\n

\n

\"Sector <\/picture>
\n

Sector breakdown (Chart: author; data: First Trust, SSGA)<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

Stocks are in equal weight after every rebalancing, but positions may drift with price action. The current top 10 holdings, listed in the next table with fundamental ratios, represent 17.4% of asset value. These are the constituents with the highest price return since the last rebalancing date. As of writing, all positions are below 2%, so risks related to individual companies are low.<\/p>\n

<\/span><\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n
\n

Ticker<\/p>\n<\/td>\n

\n

Name<\/p>\n<\/td>\n

\n

Weight%<\/p>\n<\/td>\n

\n

EPS growth %TTM<\/p>\n<\/td>\n

\n

P\/E TTM<\/p>\n<\/td>\n

\n

P\/E fwd<\/p>\n<\/td>\n

\n

Yield%<\/p>\n<\/td>\n<\/tr>\n

\n

GD<\/p>\n<\/td>\n

\n

General Dynamics Corp.<\/p>\n<\/td>\n

\n

1.85%<\/p>\n<\/td>\n

\n

3.15<\/p>\n<\/td>\n

\n

19.48<\/p>\n<\/td>\n

\n

18.77<\/p>\n<\/td>\n

\n

2.22<\/p>\n<\/td>\n<\/tr>\n

\n

AFL<\/p>\n<\/td>\n

\n

Aflac Incorporated<\/p>\n<\/td>\n

\n

1.83%<\/p>\n<\/td>\n

\n

12.66<\/p>\n<\/td>\n

\n

10.69<\/p>\n<\/td>\n

\n

13.19<\/p>\n<\/td>\n

\n

2.10<\/p>\n<\/td>\n<\/tr>\n

\n

ABBV<\/p>\n<\/td>\n

\n

AbbVie Inc.<\/p>\n<\/td>\n

\n

1.73%<\/p>\n<\/td>\n

\n

-31.10<\/p>\n<\/td>\n

\n

30.46<\/p>\n<\/td>\n

\n

13.39<\/p>\n<\/td>\n

\n

3.99<\/p>\n<\/td>\n<\/tr>\n

\n

CB<\/p>\n<\/td>\n

\n

Chubb Ltd.<\/p>\n<\/td>\n

\n

1.73%<\/p>\n<\/td>\n

\n

-16.01<\/p>\n<\/td>\n

\n

15.04<\/p>\n<\/td>\n

\n

11.23<\/p>\n<\/td>\n

\n

1.64<\/p>\n<\/td>\n<\/tr>\n

\n

ADP<\/p>\n<\/td>\n

\n

Automatic Data Processing, Inc.<\/p>\n<\/td>\n

\n

1.72%<\/p>\n<\/td>\n

\n

17.19<\/p>\n<\/td>\n

\n

30.17<\/p>\n<\/td>\n

\n

27.09<\/p>\n<\/td>\n

\n

2.02<\/p>\n<\/td>\n<\/tr>\n

\n

CAT<\/p>\n<\/td>\n

\n

Caterpillar Inc.<\/p>\n<\/td>\n

\n

1.72%<\/p>\n<\/td>\n

\n

28.61<\/p>\n<\/td>\n

\n

16.77<\/p>\n<\/td>\n

\n

13.50<\/p>\n<\/td>\n

\n

1.93<\/p>\n<\/td>\n<\/tr>\n

\n

EMR<\/p>\n<\/td>\n

\n

Emerson Electric Co.<\/p>\n<\/td>\n

\n

1.72%<\/p>\n<\/td>\n

\n

-105.42<\/p>\n<\/td>\n

\n

N\/A<\/p>\n<\/td>\n

\n

21.55<\/p>\n<\/td>\n

\n

2.17<\/p>\n<\/td>\n<\/tr>\n

\n

WST<\/p>\n<\/td>\n

\n

West Pharmaceutical Services, Inc.<\/p>\n<\/td>\n

\n

1.71%<\/p>\n<\/td>\n

\n

-23.90<\/p>\n<\/td>\n

\n

56.10<\/p>\n<\/td>\n

\n

49.06<\/p>\n<\/td>\n

\n

0.20<\/p>\n<\/td>\n<\/tr>\n

\n

IBM<\/p>\n<\/td>\n

\n

International Business Machines Corp.<\/p>\n<\/td>\n

\n

1.69%<\/p>\n<\/td>\n

\n

-64.96<\/p>\n<\/td>\n

\n

65.50<\/p>\n<\/td>\n

\n

14.75<\/p>\n<\/td>\n

\n

4.70<\/p>\n<\/td>\n<\/tr>\n

\n

ROP<\/p>\n<\/td>\n

\n

Roper Technologies, Inc.<\/p>\n<\/td>\n

\n

1.69%<\/p>\n<\/td>\n

\n

12.89<\/p>\n<\/td>\n

\n

43.01<\/p>\n<\/td>\n

\n

30.43<\/p>\n<\/td>\n

\n

0.54<\/p>\n<\/td>\n<\/tr>\n<\/table>\n

<\/span><\/span>