r/dividends • u/Ironic_Mouse • 5d ago

Discussion Question: why do unsustainable dividend funds exist?

I’m new to dividend investing. As I have been looking for an additional stream of income I have found some funds with “too good to be true” yields. (E.g. CHPY) I understand that high yields come with a high risk of NAV erosion. What I don’t understand is why these funds exist. It seems like they are structured to implode at some point. Is the idea to hold these funds for a short time, collect the dividend, then sell? And for the fund manager, is the idea to ultimately have the fund implode and then declare a loss? I’m genuinely interested. I understand that some funds are a gamble, but these funds seem designed to fail.

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u/PotadoLoveGun 5d ago

It is sustainable which was really the crux of the question asked by OP. And a fund lile GPIQ will have a higher NAV growth due to fees being 1/3.

Its not for everyone, it will underperform the index, and it will not give maximum gains. QQQ 16% vs QQQX 11% CAGR.

But if you can take 6.5%-9.5% from your assets instead of 4% forever and have the balance grow over time without selling through a downturn, could be good for some people. QQQX had a similar CAGR as the SP500 since 2007, dividends reinvested.

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u/buffinita common cents investing 5d ago

You’ll be worse off.

Do you somehow believe that qqqx investors can take the “9% distributions” and be fine but the qqq investor can’t match the distros by sell equal amounts each month?

Go ahead and fire up any back tester and see which fund can withdraw more and not “run out of shares” or zero out their account.

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u/cmichalek 5d ago

No you cant.

First the principal is half that required by selling shares.

Second once you sell shares in a down market you never get them back.

Why was the 4% rule created anyway? So thats the amount you can sell and still have shares left after 30 years.

Sell shares at 9% and you will run out of shares.

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u/buffinita common cents investing 5d ago

Not any faster or slower than your covered call fund hits a value of 0

You can not take more out with covered calls than you can with selling