- Coinbase stock does not pay a dividend as the company focuses on growth.
- The management prefers to use extra cash on share buybacks.
- The CONY EFF pays a large dividend but has a catch.
Coinbase stock remains in a bear market after falling by over 55% from its highest point last year, a drop that has coincided with the ongoing crypto winter. This article explores whether the 72% yielding CONY is a better buy.
Coinbase Pays No Dividend, But CONY Does
Coinbase, like many technology companies, does not pay a dividend despite making substantial profits. The most recent results revealed that the company made $6.8 billion in annual revenue last year and a net profit of over $2.57 billion.
Coinbase prefers to use its free cash flow to repurchase its stock, a move meant to boost its earnings-per-share (EPS).
It repurchased 3.3 million shares worth over $850 million in the fourth quarter. It has repurchased shares worth $1.7 billion, which has helped to offset the dilution related to its share-based compensation. Also, it recently launched a new $2 billion repurchase.
Still, investors interested in earning a dividend from Coinbase will likely have to wait for longer as the company is still investing in its growth.
Instead, income investors who are bullish on Coinbase stock may want to consider the YieldMax COIN Option Income Strategy ETF (CONY), which pays a variable but high dividend yield of over 70%.
CONY achieves this by leveraging the concept of covered calls, where a fund manager uses some cash to buy an underlying asset and then take a call option on the same asset.
In this case, the fund buys a stake in derivatives tracking Coinbase shares and then sells call options on the same. This approach helps it to capture the option premium, which rises in periods of high volatility, and distribute it to investors.
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Is CONY Better than COIN Stock?
In theory, CONY seems like a much better investment than COIN because of its high dividend yield and the fact that it also tracks the main stock.
However, in practice, the best metric to consider when assessing the performance of an asset is the total return, which looks at the stock performance and the dividends paid.
Covered call ETFs like CONY have often outperformed the underlying asset when its stock is falling or when it is in a tight range. They then underperform by far when the stock is rallying.
For example, CONY’s total return this year is minus 9.42%, while COIN has dropped by 12%.
In the long-term, however, covered call ETFs often underperform the underlying asset. For example, as the chart below shows, the COIN stock has risen by 4% in the last 12 months, while CONY has dropped by 15% in the same period.
Other covered call ETFs demonstrate this. A good example of this is JEPQ, which is built on the Nasdaq 100 Index. Its total return in the last 12 months was 32% as the Nasdaq 100 Index jumped by 50%.
Therefore, most analysts recommend staying away from covered call ETFs. For one, in a bull market, their performance lags the underlying asset. In a bear market, their outperformance is usually not all that big.
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