Alphabet's Yield Shares ETF: A Steady Income Play with Timing Advantages

Investors seeking consistent income streams while maintaining exposure to a tech giant like Alphabet (GOOGL) might find the Purpose Investments Alphabet Yield Shares ETF (YGOG) compelling. With its May 2025 dividend announcement and a strategy rooted in covered calls, YGOG offers a unique blend of income generation and equity exposure. Here's why it could be worth considering—especially before its June 3 payout.

The Dividend Machine: CAD 0.25 Monthly and a 25% Boost in 2025

YGOG's May 2025 dividend of CAD 0.25 per share marks another milestone in its steady payout schedule. The ETF has maintained this monthly distribution since April 2024, with a notable 25% increase to CAD 0.25 starting in January 2025. At a recent closing price of CAD 31.60, this equates to an 8.27% annualized yield, making it attractive for income-focused portfolios.

The ex-date of May 28, 2025, and payable date of June 3 create a clear timing window. Investors must purchase shares before May 28 to qualify for the dividend. This urgency is heightened by YGOG's monthly payout structure, which offers predictable income without the need to wait for quarterly distributions.

The Strategy: Covered Calls and Leverage for Income

YGOG's income engine hinges on its covered call strategy, which involves two core components:
1. 50% of NAV in Alphabet stock: The ETF holds a portion of its assets in GOOGL shares, providing direct exposure to Alphabet's performance.
2. Selling covered calls on that position: By selling call options on the Alphabet holdings, YGOG collects premiums, which are reinvested or distributed to investors.

The strategy is amplified by up to 25% leverage (via borrowed capital or derivatives), boosting potential returns. While this adds risk—particularly in volatile markets—the structure aims to stabilize income through consistent option premiums.

The tax treatment also favors investors: distributions are classified as capital gains, offering a tax-efficient alternative to traditional dividends. Additionally, YGOG hedges USD exposure for Canadian investors, mitigating currency risk.

Expense Ratio: A Moderate Cost for Active Income Generation

Critics might note the Management Expense Ratio (MER) of 1.87%, which includes a 0.40% management fee and other operational costs. While higher than passive ETFs tracking broad indices, this fee structure is typical for actively managed income-generating products. For comparison, a vanilla S&P 500 ETF often carries an MER of 0.03-0.20%.

However, YGOG's income yield (8.27%) comfortably exceeds its MER, leaving a net return of ~6.4%—a favorable trade-off for those prioritizing steady payouts.

The T+1 Settlement Shift: A Liquidity Boost for YGOG?

Purpose Investments' transition to T+1 settlement (effective May 2024) has streamlined trading logistics. For YGOG, this means:
- Faster settlement cycles: Trades now settle in one day instead of two, reducing counterparty risk and improving cash flow efficiency.
- Enhanced liquidity management: Purpose has secured credit lines and adopted real-time systems to handle cash flows, ensuring smoother redemptions and creations of ETF shares.

While YGOG's liquidity metrics (e.g., trading volume, bid-ask spreads) aren't explicitly detailed in recent disclosures, the broader industry shift to T+1 is expected to benefit ETFs tied to liquid underlyers like Alphabet. For investors, this means reduced slippage when buying or selling YGOG, particularly in volatile environments.

Risks and Considerations

• Market volatility: Alphabet's stock performance directly impacts YGOG's NAV and covered call premiums. A sharp downturn in tech could reduce payouts.
• Leverage risks: The 25% leverage amplifies gains in rising markets but also magnifies losses in declines.
• Tax complexity: While distributions are treated as capital gains, investors should consult advisors to understand jurisdictional nuances.

Investment Thesis: Act Before May 28

For income-focused investors willing to tolerate moderate risk, YGOG presents a compelling opportunity:
1. Capture the June 3 dividend: Buy shares before May 28 to lock in the CAD 0.25 payout.
2. Pair income with equity exposure: Gain indirect exposure to Alphabet's growth while collecting monthly dividends.
3. Leverage Purpose's operational adaptability: The T+1 shift and robust liquidity management reduce execution risks.

Final Take: YGOG's blend of covered calls, moderate leverage, and a tax-efficient structure makes it a strong candidate for income portfolios. With the June payout on the horizon, now is the time to act—but monitor Alphabet's stock and broader tech trends closely.

Disclosure: This analysis is for informational purposes only and does not constitute financial advice. Consult a professional before making investment decisions.