Korean Investors Turn to U.S. Dividend ETFs Amid Market Volatility

Amid rising volatility in the Korean stock market, investors are increasingly focusing on U.S. dividend-paying stocks as a means to secure regular income rather than relying solely on stock price appreciation. Market analysts noted this trend, highlighting the Dow Jones U.S. Dividend 100 Index as a prominent option. This index tracks 100 U.S. companies recognized for their strong dividend histories and financial stability, requiring companies to have paid dividends for at least a decade while also evaluating their five-year dividend growth, return on equity, and debt relative to cash flow.

The index encompasses a diverse range of industries, including energy, consumer staples, and healthcare. In Korea, the TIGER U.S. Dividend Dow Jones exchange-traded fund (ETF), managed by Mirae Asset Global Investments, has emerged as the largest locally listed ETF tracking this index, boasting net assets of 4.56 trillion won (approximately $3.41 billion) as of Thursday.

Some asset managers are enhancing their strategies by integrating dividend-paying stocks with covered-call options. This approach involves selling call options on stocks held in a portfolio in exchange for premiums, providing an additional income stream. However, this strategy may limit potential gains when stock prices rise.

Mirae Asset's Innovative ETF Strategies for Dividend Investors

Mirae Asset offers two ETFs that utilize this combined strategy, each with distinct option-selling methods and payout schedules. The TIGER U.S. Dividend Dow Jones Target Daily Covered Call ETF sells options daily, aiming for annual option premiums of around 10 percent, with monthly distributions occurring mid-month. Conversely, the TIGER U.S. Dividend Dow Jones Target Covered Call ETF 2 sells a smaller proportion of options, allowing for greater exposure to gains in the underlying stocks, targeting annual distributions of about 10 percent at the end of each month.

Investors holding both ETFs can benefit from receiving distributions twice a month, with the option to reinvest these payouts to acquire additional shares. Lee Jeong-hwan, head of the ETF management division at Mirae Asset Global Investments, emphasized that during volatile market conditions, investors should prioritize a consistent investment strategy over short-term price predictions. He noted that combining dividend-paying stocks with covered-call options enables investors to pursue regular income from both dividends and option premiums.