Most defensively-minded Canadian investors are well acquainted with the country’s largest utilities stocks – stalwarts like Fortis, Brookfield Infrastructure Partners, Hydro One, and Emera. Historically, the Canadian utilities sector has offered above-average dividend yields and exhibited lower volatility compared to the broader equity market. While such characteristics are highly valued by those seeking reliable, income-generating investments, these stocks on their own may not meet the needs of some investors.

Utility companies’ dividend yields, although attractive, might not meet the higher income needs of some investors and retirees, nor the frequency (as they typically distribute dividends on a quarterly basis). Further, the Canadian utilities sector’s heavy concentration in gas and electric utilities may not provide the diversification needed for investors looking for a core holding.

To address the growing income needs of many Canadian investors, we launched the Hamilton Utilities YIELD MAXIMZER™ ETF (UMAX) in June 2023. UMAX combines our income-first covered call strategy with a unique portfolio to provide higher tax-efficient monthly distributions and diversification beyond traditional utilities stocks and ETFs.

UMAX Highlights:

1. Higher Yield: targeting 13%+[1] with monthly distributions
2. Extra Diversification: includes Canada’s largest utility, pipeline, telecom, and railway companies
3. Tax Efficiency: Covered call premiums are generally taxed as capital gains
4. Modest Growth Potential: ~50% coverage ratio to maintain ~50% upside growth potential

Generating Above-Average Monthly Income

UMAX is designed for investors looking to maximize their monthly income above what is typically offered by utilities stocks and ETFs. To achieve this, our experienced team sells call options on the underlying stocks held in the ETF in exchange for cash premiums, which – in addition to dividends – allows UMAX to pay out higher monthly cash flows to investors. Furthermore, covered call premiums are generally taxed as capital gains, combined with the favourable tax treatment of Canadian dividends, results in a tax-efficient source of income. The trade-off is that in exchange for the cash premiums that support higher monthly distributions, UMAX forgoes some upside on the portion of its portfolio that is “covered”.

Our YIELD MAXIMIZER™ ETFs take an income-first approach by setting a target coverage ratio and yield based on over 10 years of historical options volatility back-testing. Specifically, with UMAX, we sell at-the-money call options on ~50% of the portfolio, which allows us to generate a 13%+ yield[1] while maintaining ~50% upside growth potential.

Investing Beyond Traditional Utilities

To address the diversification limitations inherent in investing in traditional Canadian utility companies, UMAX broadens its scope to include leading companies in other essential segments of the economy. Aside from the regulated utilities like the those mentioned above, UMAX invests in leading companies in sectors such as: pipelines, telecoms, and railways.

This more inclusive approach results in a diversified blue-chip portfolio of industry leaders with varied business models, customer bases, and levels of economic sensitivity that currently includes:

• Enbridge Inc — A leader in energy transportation, Enbridge operates the world’s longest crude oil and liquids pipeline system.
• Canadian National Railway Company — One of Canada’s largest rail network operators, crucial for freight handling and logistics across North America.
• Pembina Pipeline Corp — Specializes in transportation and midstream service provider for the energy sector in North America.
• TC Energy Corp — Focuses on natural gas pipelines, energy storage, and power generation projects in North America.
• Waste Connections Inc — Provides waste collection, transfer, disposal, and recycling services in mostly exclusive and secondary markets across the USA and Canada.
• BCE Inc — A major telecommunications provider, offering a range of broadband, wireless, and media services across Canada.
• Canadian Pacific Kansas City Ltd. — A transcontinental railway in Canada and the United States that offers integrated freight transportation services.
• Rogers Communications Inc — A diversified Canadian communications and media company, engaged in telecom and media businesses.
• TELUS Corp — Provides a wide range of telecommunications products and services including internet, voice, entertainment, healthcare, video, and IPTV television.

 

For additional information on our suite of YIELD MAXIMIZER™ ETFs, please CLICK HERE.

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A word on trading liquidity for ETFs …

Hamilton ETFs are highly liquid ETFs that can be purchased and sold easily. ETFs are as liquid as their underlying holdings and the underlying holdings trade millions of shares each day.

How does that work? When ETF investors are buying (or selling) in the market, they may transact with another ETF investor or a market maker for the ETF. At all times, even if daily volume appears low, there is a market maker – typically a large bank-owned investment dealer – willing to fill the other side of the ETF order (at net asset value plus a spread). The market maker then subscribes to create or redeem units in the ETF from the ETF manager (e.g., Hamilton ETFs), who purchases or sells the underlying holdings for the ETF.

[1] As at June 30, 2024. Distributions are not fixed or guaranteed. Hamilton ETFs may, in its complete discretion, change the frequency or expected amount of these distributions. Target yield is an estimate of the annualized yield an investor would receive if the target distribution remained unchanged for the next 12 months, stated as a percentage of the net asset value per unit on the as at date.

 

Commissions, management fees and expenses all may be associated with investments in exchange traded funds (ETFs) managed by Hamilton ETFs. Please read the prospectus before investing. Indicated rates of return are the historical annual compounded total returns including changes in per unit value and reinvestment of all dividends or distributions and does not take into account sales, redemptions, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Only the returns for periods of one year or greater are annualized returns. ETFs are not guaranteed, their values change frequently and past performance may not be repeated.

Certain statements contained in this website may constitute forward-looking information within the meaning of Canadian securities laws. Forward-looking information may relate to a future outlook and anticipated distributions, events or results and may include statements regarding future financial performance. In some cases, forward-looking information can be identified by terms such as “may”, “will”, “should”, “expect”, “anticipate”, “believe”, “intend” or other similar expressions concerning matters that are not historical facts. Actual results may vary from such forward-looking information. Hamilton ETFs undertakes no obligation to update publicly or otherwise revise any forward-looking statement whether as a result of new information, future events or other such factors which affect this information, except as required by law.