Direxion HCMT's Dividend Dip: Sustainable or a Red Flag?

Investors in the Direxion HCM Tactical Enhanced US ETF (HCMT) faced a notable surprise in June 2025 when its quarterly dividend dropped to $0.0523 per share, marking a 17% decline from the previous quarter's $0.06352. This shift raises critical questions about the sustainability of HCMT's dividend policy amid volatile markets, high expense ratios, and the risks inherent in its leveraged, quant-driven strategy. Let's dissect the data to assess whether this ETF's income stream remains reliable or if investors should proceed with caution.

The Declining Dividend: A Trend or Anomaly?

Since its June 2023 launch, HCMT has distributed dividends quarterly, with amounts fluctuating between $0.05228 and $0.06455. The recent $0.0523 payout—the lowest since Q3 2023—signifies a worrisome reversal.

The drop coincides with HCMT's underperformance in 2025. As of April 30, 2025, its NAV had declined 26.37% year-to-date, reflecting struggles in its leveraged equity exposure. The fund's proprietary HCM-BuyLine model, which allocates between U.S. equities and cash based on technical signals, may have misfired in volatile markets. A -26% YTD return suggests the model's reliance on short-term trends isn't delivering consistent gains, undermining dividend stability.

Leverage and Liquidity Risks: A Double-Edged Sword

HCMT's strategy involves up to 200% leverage on equities, amplifying both gains and losses. While this can boost returns in bull markets, it exposes the fund to severe drawdowns during downturns. For instance, its Q1 2025 dividend of $0.06352 followed a -11.2% NAV drop in Q4 2024, suggesting the fund is distributing capital to preserve liquidity—or signaling underlying weakness.

The fund's $449 million AUM adds another layer of risk. Smaller ETFs may struggle to maintain liquidity in stressed markets, forcing them to sell assets at unfavorable prices—a process that could further strain dividends.

Expense Ratio: A Silent Erosion of Returns

With a net expense ratio of 1.17% (capped at 1.15% until 2026), HCMT charges nearly double the average for U.S. equity ETFs. Over time, this fee eats into returns, especially when paired with volatile performance. Consider this:
- A $10,000 investment in HCMT over five years, assuming a 5% annual return (matching its 5.25% inception-to-April 2025 NAV gain), would yield $12,800.
- After fees, the net would be $12,500—a 2.3% haircut.

For income investors, high fees compound the problem. A 1.17% drag annually reduces the effective yield on HCMT's 3.08% dividend to around 2.9%—a modest return for a fund taking on such risk.

Dividend Consistency: A Broken Promise?

HCMT's dividend history reveals no clear pattern of growth. Its highest payout, $0.06455 in December 2024, was followed by a drop to $0.06352 in March. The June 2025 decline to $0.0523 breaks even that trend. This inconsistency contrasts sharply with traditional dividend aristocrats like Procter & Gamble (PG), which have raised dividends annually for decades.

The fund's one-off capital gain distributions, such as the $0.75067 short-term gain in December 2024, further complicate matters. These aren't recurring income streams but reflections of realized gains—a strategy that may not persist in sideways or bearish markets.

Investment Takeaways: Proceed with Eyes Wide Open

1. Strategic Fit Matters: HCMT is designed for aggressive investors willing to tolerate high volatility and fees for tactical exposure to U.S. equities. Its dividend fluctuations make it a poor fit for income-focused portfolios.
2. Expense Sensitivity: The 1.17% fee is a non-negotiable cost. Investors should demand consistent outperformance to justify it—a hurdle HCMT has yet to clear.
3. Risk Management: The fund's 200% leverage amplifies losses. During corrections, its NAV could plummet faster than benchmarks, risking further dividend cuts.

Final Verdict

The $0.0523 dividend decline is more than a blip—it's a symptom of HCMT's underlying challenges. While the fund's tactical model may shine in favorable conditions, its high fees, inconsistent payouts, and reliance on volatile leverage make it a risky bet for all but the most sophisticated investors.

For most, a low-cost S&P 500 ETF or a dividend-focused fund with a proven track record would offer safer income and better risk-adjusted returns. HCMT's appeal lies in its potential to capitalize on sharp market moves—but that potential comes with a steep price tag and no guarantees.

Invest wisely, and always align your choices with your risk tolerance.

Disclaimer: Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.