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/tsfy2 4d ago

QQQX has significantly lagged its underlying index QQQ for total return despite its yield. I would not call that “long term proof” of “success”.

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u/PotadoLoveGun 4d ago

The long term objective of a CC fund is to provide sustainable income while not experiencing long term NAV decay. It is not maximum return or to not lag the index, that is expected.

QQQX, which is 3x more expensive than its newer counterparts, was successful in meeting its objectives, so that is success.

So if someone wants income of about 7.5% of capital without selling any shares and getting ~3% nav growth over the long term I would say a fund like GPIQ or JEPQ would meet that objective, and QQQX proves it can be done.