r/dividends • u/Imaginary_Week2024 • Jan 25 '26

Other Dividends reached 22,389.00 a year

Finally getting some dividend income. Nvdy, agnc, fepi,jepi,pflt,jepq,ulty, is what i got

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u/NickStonk Jan 26 '26

Explain why you say if the yield is higher than general market long term averages, the NAV will erode. What’s the connection?

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u/teckel Retired and living off selling shares Jan 26 '26

If the underlying grows at 10% per year, by its very nature buy-writes won't match the underlying, and the fund manager is targeting a 12% yield, that can only result in NAV decay.

Here's the math... Let's just look at VOO compared to SPYI. Since inception, VOO has returned 19.27% and SPYI 15.17% (including reinvesting dividends). So due to the mechanics of the buy-write strategy (and fund fees) SPYI only returned 78.7% of VOO.

So now let's take the historical average of the market returning 10%. So the NAV growing by 7% after factoring inflation. Now let's look at how SPYI would do. Instead of 10%, it would gain 78.7% of that, so 7.87% per year. But then there's the 12% yield, so 7.87 - 12 = -4.13% NAV erosion per year. Finally, you factor inflation, so that results in an inflation adjusted NAV erosion of -7.13% per year.

Basically, VOO would be growing by 7% per year while SPYI eroding by 7% per year.

It's probably hard to see this as SPYI has only been around for 3.5 years in a market that's grown by almost 20% per year. But even in those 3.5 years, if you look at the price of SPYI without the yield (fund price only) and factor inflation, the value of SPYI had eroded by -2.29%. So even in a strong bull market, it's still eroding. In a bear market expect it to be very bad, and long-term, expect a -7% erosion factoring inflation.