Hamilton Utilities ETF's Dividend Boost: A Steady Yield in Volatile Markets?

The Hamilton Enhanced Utilities ETF (HUTS.TO) has reaffirmed its appeal to income-seeking investors with its latest monthly dividend of CAD 0.076 per unit. This distribution, part of the ETF’s consistent payout strategy, underscores its focus on generating high yield through a portfolio of Canadian utility, telecom, and pipeline stocks. But as investors weigh the allure of its 7.42% annualized yield—among the highest in its sector—key questions arise: How sustainable is this dividend? What risks lurk beneath the surface? And does the ETF’s technical outlook justify its current price?

Ask Aime: "Can HUTS.TO's high yield be sustained? What risks should income-seeking investors consider?"

The Leverage Advantage—and Its Risks

HUTS distinguishes itself by using 25% cash leverage to amplify returns, a strategy that has boosted its yield to 7.42% as of late 2024. Unlike many ETFs that rely on derivatives, HUTS borrows cash to invest in its underlying index, the Solactive Canadian Utility Services High Dividend Index TR x 1.25, which tracks companies like enbridge, TC Energy, and TELUS. This approach magnifies both gains and losses, making the ETF’s performance sensitive to market volatility.

The trade-off is clear: While leverage amplifies returns in rising markets, it can accelerate declines during downturns. For instance, the ETF’s NAV dropped to $12.32 by January 2025—before rebounding to $12.62 by late April—highlighting its sensitivity to price swings. Investors must assess whether the 0.721% average daily volatility over the past week justifies the extra yield over unleveraged utility ETFs.

Ask Aime: "Is the HUTS ETF's high yield sustainable amid market volatility?"

Technicals: A Bullish Signal Amid Caution

Technical analysts are split on HUTS’s near-term prospects. On April 24, the ETF closed at $12.62, up 0.4% on the day and the third consecutive session of gains. A Golden Star Signal—a rare bullish indicator—emerged on April 17, suggesting a potential long-term upward trend. However, short- and long-term moving averages remain in a bearish alignment (with the long-term average above the short-term), and a stop-loss at $12.10 (a 4.15% drop from April 24’s close) is advised to limit losses.

The Dividend: Sustainable or a Mirage?

The $0.076 monthly distribution (equivalent to CAD 0.91 annually) relies on the underlying portfolio’s dividends and the leverage-enhanced returns. Utilities are typically stable dividend payers, but HUTS’s heavy exposure to Canadian energy infrastructure—Enbridge and TC Energy account for 22% of holdings—introduces sector-specific risks. Pipeline companies face regulatory and environmental headwinds, while telecom stocks like TELUS are grappling with slower growth.

Moreover, the ETF’s management fee of 0.65% and the cost of borrowed funds must be covered by returns. If the underlying index’s yield dips below a certain threshold, the dividend could come under pressure. As of April 24, the ETF’s price sits above its NAV of $12.32 (as of January), suggesting investors are pricing in optimism about future gains.

Support and Resistance: Key Levels to Watch

Technical analysts highlight $12.46 and $12.59 as critical support levels, while resistance looms near $12.86. A breach of these thresholds could signal a shift in momentum. Meanwhile, the daily volatility of 0.636% on April 24 underscores the ETF’s position as a higher-risk income play compared to traditional utility ETFs.

Conclusion: A High-Yield Gamble for the Right Investor

HUTS.TO offers an enticing yield in a low-interest-rate environment, but it is not without pitfalls. The 7.42% annualized payout and leverage-driven returns make it a compelling option for income investors willing to tolerate volatility. However, the ETF’s sensitivity to energy sector headwinds, regulatory risks, and its stop-loss proximity to recent lows ($12.10) demand caution.

For now, the Golden Star Signal and three-day upward trend suggest cautious optimism, but investors should monitor the $12.86 resistance level closely. While the ETF’s CAD 119 million in assets under management reflects growing institutional interest, retail investors should pair it with lower-risk holdings to balance their portfolios. In a market craving yield, HUTS delivers—but only for those who can stomach the ride.