Q: In my taxed investment account I’m looking to increase my USD monthly income. I have Canadian banks, utilities, telecoms in USD so I receive their dividends in USD’s. What do you think about adding a covered call like HYLD.u or other? (prefer to avoid withholding tax). Thx!
5i Research Answer:
Distributions from HDIV and HYLD/HYLD.U are not subject to withholding taxes. The level of distributions reflects the fact that withholding taxes have already been paid by the underlying holdings (i.e., distributions are net of withholding taxes). We are comfortable with covered call funds as long as an investor understands them. They can lag in a stock market rally, but if income is the main focus they serve the purpose. HYLD.U has an indicated yield of 12.32% currently. The yield also provides 'some' downside protection in a market sell off.