Is DIVO's $0.1675 Dividend a Safe Bet in Rising Rates?

The Amplify YieldShares CWP Dividend & Option Income ETF (DIVO) recently declared a monthly dividend of $0.1675 per share, payable on June 30, 2025. This marks the ETF's latest installment in a strategy that combines dividend income with covered call options to generate steady payouts. But as the Federal Reserve hints at further rate hikes, investors are asking: Can DIVO sustain this yield, and does it make sense for income-focused portfolios in a rising-rate environment? Let's dig into the data.

The Dividend: A Mixed Picture of Stability and Concern

DIVO's June dividend of $0.1675 translates to an annualized yield of ~4.9% based on its recent share price of $41.12. While this is a solid payout, the fund's dividend history reveals some volatility. Over the past five years, its yield has swung between 4.5% (early 2024) and a high of 7.4% (late 2023). The current payout aligns with the lower end of this range, but the 58% return of capital in the most recent distribution is a red flag. Return of capital means investors are getting back part of their principal, not just income, which isn't sustainable long-term unless the fund's earnings grow.

The Strategy: Dividends Plus Covered Calls

DIVO's approach is twofold:
1. Dividend Focus: It invests in large-cap U.S. equities with strong dividend histories. Top holdings include Visa (5.2%), Microsoft (5%), and Caterpillar (5%), all of which have stable cash flows.
2. Covered Calls: The fund sells call options on ~2.5% of its portfolio, generating premiums. This strategy aims to boost income while capping upside risk—a potential advantage in volatile markets.

The combination has kept annualized distributions steady at ~$1.70 per share since 2022, but the Consecutive Annual Dividend Increases (CADI) score of 1 suggests dividend growth has stalled. That's a risk if the fund can't expand payouts further.

Sector Exposure: Rising Rates, Rising Risks?

The ETF's portfolio is tilted toward sectors that could thrive or falter in a rising-rate environment:

• Financials (27%): The largest allocation, including JPMorgan Chase (4.9%) and Goldman Sachs (4.8%), stand to benefit from higher interest rates, which boost banks' net interest margins. This exposure is a plus in a rate-hike cycle.
• Technology (17%): Microsoft and Meta Platforms (4.5%) are dividend payers but operate in sectors sensitive to economic growth. While tech isn't as rate-sensitive as utilities, it could lag if higher borrowing costs slow spending.
• Utilities (2.4%): Underweight here reduces exposure to rate-sensitive “bond proxies” that often struggle when yields rise.

Recent Performance: Outlasting Volatility

In May 2025, DIVO returned 3.6%, underperforming the S&P 500's 6.3% but outpacing the CBOE S&P 500 BuyWrite Index (0.9%). The fund's focus on Financials and Industrials helped, but its underweight in Tech (which powered the S&P's gains) hurt relative performance. Active management moves—like exiting UnitedHealth (a volatile holding)—show an effort to optimize for income over growth.

The Bottom Line: A Play for Income, Not Growth

DIVO's 4.9% yield makes it attractive for income seekers, especially in a low-yield world. Its Financials tilt and covered call strategy could hold up in rising rates, but the 58% return of capital is a warning sign. Investors should ask:

1. Can the Fund Grow Earnings? Without consistent dividend increases from holdings or a shift to less return-of-capital-heavy payouts, this yield might erode.
2. Is the Covered Call Strategy Enough? While it dampens volatility, it also limits upside—a trade-off for income-focused investors.

Investment Takeaway

For conservative income portfolios, DIVO is a decent option in a rising-rate environment, thanks to its Financials exposure and covered call cushion. However, the heavy return of capital and stagnant dividend growth mean it's not a buy-and-forget pick. Pair it with fixed-income alternatives to balance risk, and monitor its yield closely. If rates stabilize or the fund boosts organic income, this ETF could shine. But in a prolonged high-rate scenario, investors may need to rotate to more rate-resistant assets.

In short: DIVO is a dividend machine for now, but investors should keep one eye on its structural risks.