SPYH Dividend Hike Highlights Hedged Equity Income Strategy’s Appeal

The NEOS S&P 500 Hedged Equity Income ETF (SPYH) recently declared a $0.2559 dividend for April 2025, marking an increase from its prior distribution. This move underscores the fund’s focus on generating steady income while mitigating equity market volatility—a strategy gaining traction among investors seeking stability in uncertain markets.

The Dividend Increase: Context and Strategy

The April dividend follows a pattern of monthly distributions, with SPYH’s 2025 calendar showing varying payout amounts (see table below). The $0.2559 dividend, though lower than March’s $0.5065, is part of a dynamic strategy that balances income generation with risk management. SPYH’s approach hinges on a data-driven options strategy, specifically a put spread collar, which combines selling call options to collect premiums with purchasing protective puts to limit downside exposure. This dual mechanism aims to stabilize returns in volatile markets.

Month	Dividend Amount	Ex-Dividend Date
January 2025	$0.5167	Jan 22
February 2025	$0.5142	Feb 26
March 2025	$0.5065	Mar 26
April 2025	$0.2559	Apr 23

How SPYH’s Strategy Works

SPYH’s hedging mechanism involves:
1. Put Spread Collars: Buying out-of-the-money puts to protect against sharp declines while selling call options to generate income.
2. Tax Efficiency: Distributions qualify as Section 1256 contracts, offering a 60/40 tax split (60% long-term capital gains, 40% short-term). This structure reduces tax burdens compared to traditional equity income.
3. Monthly Rolling Options: Positions are rolled at month-end to avoid premium decay near expiration, ensuring consistent returns.

The fund’s 12.66% trailing distribution rate (as of March 2025) and 0.68% expense ratio make it competitive for income-focused investors. However, 96% of the April distribution was classified as return of capital, which reduces investors’ tax liability in the short term but may lower their cost basis over time.

Performance and Risks

As of March 31, 2025, SPYH had delivered an annualized return of 11.26% since its August 2022 launch, outperforming the Cboe S&P 500 BuyWrite Index (9.92%) but trailing the S&P 500 itself (15.41%). This reflects its downside protection trade-off: in volatile markets, SPYH limits losses but caps upside potential.

Key Considerations for Investors

• Income Stability: SPYH’s monthly distributions and tax advantages appeal to retirees or income seekers.
• Risk Mitigation: The put collar strategy reduced losses during market dips, as seen in Q1 2025 when SPYH fell -4.60% versus the S&P 500’s -5.63% decline.
• Cost Basis Management: Investors should monitor return-of-capital components, which may affect long-term capital gains.

Conclusion: A Niche Tool for Balanced Portfolios

SPYH’s dividend increase in April 2025 highlights its adaptability in balancing income and risk. While its performance lags pure equity benchmarks in bull markets, its hedging strategy and tax efficiency make it a valuable complement to core equity holdings. With a 6.6% dividend yield and a focus on S&P 500 exposure, SPYH suits investors prioritizing stability over maximum growth.

However, its reliance on options means returns are tied to volatility and interest rates, and its return-of-capital-heavy distributions require careful tax planning. For those willing to trade some upside for consistency, SPYH offers a compelling alternative in a market wary of prolonged declines.

In sum, SPYH’s strategy delivers on its promise of hedged income—though investors must weigh its strengths against its inherent limitations in a portfolio context.