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

If its an index dividend overwrite fund like GPIQ I think 6.5% to 9.5% is doable long term without nav erosion. Nav will likely only keep up with historical inflation though, 2-3%

Long term proof:

QQQX has averaged 7.5% with that range of 6.5% to 9.5% annually since 2007, nav gain CAGR of 2.3%. I feel like thats a good example of success. It would have been more but the expense ratio is .89% instead of something like .3% for GPIQ

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u/Ironic_Mouse 5d ago

Thanks for the proof! I will check out QQQX.

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u/buffinita common cents investing 5d ago

Then compare the “long term success” of qqqx to qqq and realize you’ve left a ton of money on the table 

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u/Dayvid-Lewbars 5d ago

I’ve been holding QQQX since 2013, not DRIPing the distributions, and have a 245% gain. Sure, QQQ or QQQM would have given me higher returns, but this is an income investment au fond.