Hamilton Utilities ETF's Dividend Boost: A Steady Yield in Volatile Markets?
2min read 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?
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.
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.
