DIVO: The ETF That's Playing Hard to Get

Ever been on a date where someone tries to be everything to everyone? Meet DIVO, the ETF equivalent of that person. But unlike your last Tinder match, this one might actually deliver on its promises.

The Amplify CWP Enhanced Dividend Income ETF (DIVO) has been turning heads lately, and not just because it has a fancy name & a 5-star Morningstar rating. With $3.7 billion in assets under management, it's like the popular kid at school who's actually nice to everyone. How did it get so popular? Well, it's mastered the art of being a "hybrid" – offering both income and growth potential, kind of like promising both dinner AND a movie.

The Dating Profile

• Seeks: Long-term investors looking for both income and growth

• Age: Since 2016 (still young enough to be exciting, old enough to be reliable)

• Interests: Quality stocks, tactical covered calls, and making its investors happy

• Current Status: Yielding 4.7% (not too hot, not too cold – just right)

• Turn-ons: Companies with strong fundamentals and good management

• Turn-offs: Excessive volatility and dividend cuts

Why It's Different

Unlike those ETFs that throw themselves at every covered call opportunity, DIVO plays it cool. It uses a tactical approach, writing covered calls only when it sees a good opportunity. Think of it as the difference between someone who swipes right on everyone versus someone who actually reads your profile first.

While other covered call ETFs like QYLD and XYLD are the equivalent of speed dating – writing calls on everything that moves – DIVO is more like a selective matchmaker. It typically writes calls on just five to ten stocks (about 25-33% of the portfolio), and only when the timing and conditions are just right. This means when a stock is showing strength or when market volatility makes those premiums particularly juicy. It's like waiting for the perfect moment to send that "hey, what's up?" text.

The fund maintains a highly exclusive club of 20-30 blue-chip stocks (think of it as a very selective guest list), drawn from the S&P 100's most eligible candidates. These aren't just any stocks – they're carefully selected based on consistent earnings growth, dividend history, and modest valuations. It's like having a really thorough screening process for potential dates: must have a good job, stable income, and solid future prospects. And just like that friend who has zero tolerance for drama, DIVO immediately dumps any stock that cuts or suspends its dividend.

Here's where it gets interesting:

Morningstar's analysis shows DIVO plays the field differently than most. While it lagged behind the S&P 500's 13.5% annualized return (from January 2017 through January 2024) with its own 11.6%, it did so with 20% less drama (er, volatility). It's like dating someone who's maybe not the life of the party, but definitely more reliable when things get rough – just look at 2022, when DIVO only lost 1.5% while the S&P 500 dropped 18%.

But let's keep it real – this selective approach comes with some quirks. When DIVO writes calls on a stock that keeps rising (about 30% of the time), it's forced to say goodbye to that position. It's like having to break up with someone right when things are getting good. Plus, about half of DIVO's total return comes from yield, which means Uncle Sam will want his cut at ordinary tax rates (surprise tax bills are never fun in relationships or investing).

What's particularly clever about DIVO's approach is how it balances its strategy. While some funds go all-in on high yields (and potentially sacrifice growth), DIVO aims for a more sustainable approach: targeting 2-3% yield from dividends and then supplementing that with its tactical covered call strategy. It's the investment equivalent of having both a stable day job and a successful side hustle.

The Performance Story

Here's where it gets interesting. While some high-yield ETFs are like that friend who promises to pick up the tab but always "forgets" their wallet, DIVO's performance tells a more nuanced story. It's like dating someone who might not sweep you off your feet immediately but proves reliable over time.

Let's look at the numbers (because who doesn't love a good stats review on a first date?): DIVO was up 17% in 2024, outperforming popular peers like JEPI and even the dividend darling SCHD. That's like getting both the dinner AND the movie, and maybe even dessert. But here's the plot twist – over the longer term (2017-2024), DIVO's 11.6% annualized return played it a bit more conservative compared to the S&P 500's 13.5% hot streak.

But before you swipe left, consider this: DIVO brings 20% less drama (volatility) to the relationship than the S&P 500. And when things got really rough in 2022's market meltdown, DIVO showed its true colors by only dropping 1.5% while the S&P 500 took an 18% nosedive. Talk about a shoulder to cry on! However, like that steady partner who's great in a crisis but sometimes misses out on the fun, DIVO lagged in 2023's bull market, gaining only 7% while the S&P 500 partied up 24%.

The secret to this stability? Think of it as having a diverse friend group rather than putting all your eggs in one basket. DIVO maintains a cozy circle of 20-30 blue-chip buddies, currently showing some love to financials while playing it cool with tech stocks. And unlike some ETFs that write covered calls on everything that moves, DIVO is more selective, typically only writing calls on about a quarter to a third of its portfolio – it's not trying to dance with everyone at the party.

Building Generational Wealth

Here's where DIVO really shines as a potential long-term relationship. Think of it as starting a family tradition – but instead of passing down grandma's secret recipe, you're cultivating a living, growing investment. With its focus on high-quality companies (that 64.65% wide moat coverage isn't just a fancy stat), DIVO is built for the long haul. These aren't flash-in-the-pan stocks; we're talking about businesses with proven staying power and competitive advantages that could span generations.

The beauty of DIVO's approach is in its compound growth potential. Those monthly dividends, when reinvested, can create a snowball effect that would make your future grandkids proud. Consider this: while the 4.41% yield might seem modest compared to some high-yield funds, it's the combination of sustainable dividend growth and capital appreciation that makes DIVO a potential wealth compounder. The fund's holdings have shown a 7.67% long-term earnings growth rate, and with quality metrics like a 23.97% cash return percentage, these companies aren't just surviving – they're building empires of their own.

By focusing on companies with strong moats, solid balance sheets (that A- Financial Health grade isn't just for show), and consistent dividend policies, DIVO positions itself as more than just an income fund – it's a potential cornerstone for building multi-generational wealth. It's like planting a garden that not only produces fruit today but grows stronger and more productive with each passing season.

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The Catch (Because There's Always One)

Like any investment relationship, there are some potential red flags:

• It might be more volatile than your typical index fund (but hey, excitement keeps things interesting)

• The covered call strategy could cap some upside (sometimes you have to compromise)

• The portfolio is relatively concentrated (it knows what it wants)

What's Actually in This Thing?

Let's peek under the hood of DIVO's portfolio (because you should always know what you're getting into). This ETF is like that friend who keeps a very exclusive social circle – just 24 equity positions and 4 other holdings. The top 10 holdings account for 51% of the portfolio, so when we say "selective," we mean it.

As of February 2025, the A-list includes:

• UnitedHealth Group (5.64%) - The responsible healthcare friend

• Amgen (5.45%) - The biotech innovator

• CME Group (5.09%) - The financial market maestro

• Visa (5.04%) - The one who always picks up the tab (digitally)

• American Express (5.02%) - The premium lifestyle companion

DIVO's sector preferences show it's not afraid to play favorites:

• Financial Services (25.02%) - The biggest chunk of the portfolio

• Industrials (14.12%) - For that old-school stability

• Technology (13.99%) - But not too tech-heavy

• Healthcare (13.13%) - Because everyone needs a doctor

• Consumer Cyclical (12.02%) - For when the economy's feeling good

  

  Sectors (Source: Koyfin)

What makes this portfolio interesting is its quality metrics. With a P/E ratio of 19.47 (compared to the category average of 19.63), it's neither cheap nor expensive – let's call it "reasonably sophisticated." The portfolio companies show solid growth numbers, with a 7.67% long-term earnings growth rate and a healthy 23.97% cash return percentage.

Looking Ahead

With interest rates heading down and the economy showing strength, DIVO's positioning looks intriguing. Here's why …

First, let's talk quality. The fund's holdings have some impressive stats (Source: Morningstar):

• A solid A- Financial Health grade

• Wide moat coverage of 64.65% (meaning most of its holdings have strong competitive advantages)

• A reasonable debt-to-capital ratio of 49.01%

• An attractive free cash flow yield of 25.03%

The portfolio is actively managed with a 73% turnover rate, showing it's not afraid to adapt to changing market conditions. And unlike your ex, who couldn't commit, DIVO's management has shown they're in it for the long haul, maintaining their disciplined approach since 2016.

What's particularly interesting is how DIVO balances its defensive and cyclical positions. With significant allocations to both sectors, it's like having friends who are good for both quiet nights in (Consumer Defensive, 4.43%) and wild nights out (Consumer Cyclical, 12.02%). This balance could serve investors well as we navigate through 2025's market conditions.

But remember, this isn't your typical passive index fund. With active management and that selective covered call strategy, DIVO is more like a sophisticated dinner party than a casual buffet – carefully curated, but with enough variety to keep things interesting.

The Bottom Line

If you're tired of choosing between growth and income – between the exciting partner who's always broke and the boring one with a great job – DIVO might be your perfect match. But like any relationship, it's complicated. Morningstar gives it a "Neutral" rating, citing the complexity of managing all these moving parts and questioning whether its edge can last long-term. Think of it as that person who seems to have it all together but might be juggling too many balls at once.

The management team at Capital Wealth Planning (led by Kevin Simpson and Josh Smith) has been running this strategy since 2016, and while they've shown they can walk the tightrope between income and growth, there's always the question of whether they can keep the act going. It's like a circus performer who's done the high-wire act perfectly for years – impressive, but you still hold your breath every time.

Remember, investing, as in dating, is all about finding the right balance and understanding what you're getting into. DIVO might just be the balanced partner your portfolio has been swiping right for – just make sure you're okay with its quirks, including those potential tax surprises.

Disclaimer: This analysis is for informational purposes only. Always do your own due diligence before investing, and remember that past performance doesn't guarantee future results – just like your ex's promises. Morningstar ratings and analysis as of February 2024.