Maximizing Monthly Income in a Low-Yield Environment: A Deep Dive into Ninepoint Royal Bank HighShares ETF (RYHI)

In a world where traditional fixed-income assets yield less than 4% and dividend stocks struggle to outpace inflation, Canadian investors are increasingly turning to innovative strategies to enhance income. The Ninepoint Royal Bank HighShares ETF (RYHI) has emerged as a compelling solution, combining smart leverage, a disciplined covered call strategy, and tax-efficient distributions to generate superior monthly returns compared to holding Royal Bank of Canada (RY) directly. For income-focused investors, RYHI represents a sophisticated yet accessible tool to navigate the challenges of a low-yield environment.

The Mechanics of RYHI: Leverage and Covered Calls

RYHI's design is rooted in two key components: modest leverage and a covered call overlay. The ETF employs up to 25% leverage of its net asset value (NAV), amplifying exposure to Royal Bank shares while maintaining a conservative risk profile. This leverage is used to purchase additional RY shares, increasing the base for dividend income and option premium generation.

Simultaneously, RYHI sells call options on up to 50% of its NAV, collecting premiums that are distributed to investors monthly. This covered call strategy acts as a dual-income generator: it captures option premiums while retaining upside potential in RY's stock price. For example, if RY's shares rise modestly, the ETF still benefits from capital appreciation on the unhedged portion of its holdings. Conversely, in a stagnant or declining market, the premium income offsets potential losses, offering a buffer against volatility.

Fee Efficiency and Tax Advantages

RYHI's cost structure is another differentiator. Until February 28, 2026, the ETF waives its management fee, reducing investor drag. Post-2026, the fee jumps to 0.29%, still competitive with similar single-stock covered call ETFs. This low-cost model enhances net returns, particularly in a low-yield environment where every basis point matters.

Tax efficiency further amplifies RYHI's appeal. Distributions are categorized as Canadian eligible dividends, capital gains, or return of capital, all of which are taxed more favorably than interest income. For instance, eligible dividends qualify for the dividend tax credit in Canada, while capital gains are taxed at a lower rate. This structure allows investors to retain more of their income, a critical advantage in a high-tax environment.

RYHI vs. Traditional RY Holdings

To understand RYHI's edge, consider a direct comparison with holding RY stock. Royal Bank currently yields 3.33% annually, with a sustainable payout ratio of 49.7%. While reliable, this yield pales against RYHI's projected monthly distributions. As of August 2025, RYHI's anticipated distribution rose to $0.09 per share, translating to a 10.8% annualized yield—a significant uplift from RY's 3.33%.

Moreover, RYHI's covered call strategy mitigates downside risk. In a market downturn, the premium income from sold options can offset losses in RY's stock price. For example, during the 2022 market selloff, a similar covered call strategy on RY would have generated ~5% in premium income, cushioning the blow of a 20% stock price decline.

Risk Considerations and Strategic Balance

RYHI is not without risks. The leverage and options strategy introduce NAV slippage, where the ETF's price may diverge from RY's stock price. Additionally, leverage amplifies losses in a severe market decline. However, the 25% leverage ratio is conservative compared to aggressive leveraged ETFs, and the covered call strategy inherently limits downside exposure.

Investors must also consider opportunity cost: by capping RY's upside through covered calls, RYHI forgoes gains if the stock surges. For instance, if RY's shares rise 20% in a year, RYHI's returns would lag behind a pure RY holding. This trade-off is acceptable for income-focused investors prioritizing stability over growth but less ideal for those seeking capital appreciation.

The Tax-Efficient Edge

For U.S. investors, RYHI's structure offers a notable advantage over direct RY ownership. While RY dividends are subject to a 15% Canadian withholding tax (refundable via U.S. tax credits), RYHI's distributions are structured to minimize this burden. By categorizing income as eligible dividends or capital gains, the ETF reduces the effective tax rate on distributions. Furthermore, RYHI's DRIP-eligible status allows investors to reinvest distributions tax-efficiently, compounding returns over time.

Conclusion: A Strategic Tool for Income-Driven Portfolios

RYHI is not a one-size-fits-all solution but a powerful tool for investors seeking tax-efficient, monthly income in a low-yield world. Its combination of leverage, covered calls, and low fees creates a compelling case for those who prioritize income stability over aggressive growth. While risks like NAV slippage and capped upside exist, the ETF's disciplined approach and tax advantages make it a superior choice to traditional RY holdings for income-focused portfolios.

For Canadian investors, RYHI represents a bridge between the reliability of blue-chip stocks and the innovation of structured products. In an era where traditional income sources falter, RYHI's strategy offers a path to outperform—without sacrificing the safety of a well-known financial institution. As the ETF's management team continues to refine its approach, RYHI stands as a testament to the power of combining smart leverage and tax efficiency in the pursuit of yield.