Leveraging AI in Search of Capital Gains and Dividends

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Qraft AI ETFs

8 min readMar 2, 2021

There is no one-size-fits-all approach to investing. While making money is, well, making money, there are several sources of investment returns one can have in a diversified portfolio. Two most common types are capital gains and dividends.

Capital Gains 101

Achieving capital gains is more common and less complicated. To simply put, a capital gain is a rise in an investment’s market price and the profit achieved by selling the stock. This economic concept isn’t just exclusive to stocks. It can be attributed to any form of security in which a profit has been made through the increase in value over a certain period of time. Some examples include mutual funds, ETFs, real estate, individual stocks, and commodities.

In almost all cases, unless you are short-selling, the purpose of buying a stock is to appreciate in value over time. This strategy is often referred to as a buy-low and sell-high approach. For instance, if a stock is worth $5 per share and it rises to $10 per share, you have earned $5 in capital appreciation. Once sold and the profit realized, that $5 per share will be your capital gain. There are several reasons stock prices will increase. A company can outshine a competitor based on innovation, strong earnings, and favorable demands. Others include macroeconomic factors like low interest rates, inflation, and the broader economic trends. Companies that anticipate growth and appreciate in value are called growth stocks. These stocks are known for paying little to no dividends.

Dividends 101

A dividend is a distribution of profits to shareholders of a company. Unlike growth stocks, most companies paying out dividends are considered blue chip stocks with an average market cap of $10 billion or more. Many U.S. companies will pay a dividend once each quarter, but there are exceptions. For example, some companies pay dividends once every six months or once a year. Others can pay once each month, though this is extremely rare. Dividend stocks tend to be the least volatile of all stocks, which means they are considered a popular choice among conservative investors.

One of the metrics dividend investors look for is dividend yield, which is a ratio of how much a company pays in dividends each year relative to its share price. Dividend yields are inversely related to the share price, which essentially means that if a stock’s price increases, its dividend yield will actually decrease. Likewise, if a stock’s price decreases, its dividend yield will increase. As an investor, it’s important to note that just because a company has a high dividend yield, doesn’t automatically mean that it’s a great investment. You’ll need to check if it’s due to stock price falling and research about other factors like the company’s payout ratio.

Dividend Payout Ratio

A dividend payout ratio is the proportion of the total dividends paid to shareholders relative to the company’s net income. In other words, it’s the percentage of earnings paid to shareholders in dividends. Compared to a dividend yield, a dividend payout ratio is another way to gauge whether or not a company has the potential to maintain sustainable dividend payments. For example, if the ratio is too high, it may indicate that only a small portion of the company’s profits are going towards future operations and potential debt payments, which will affect their long-term growth.

Dividend-Focused ETFs

An Exchange Traded Fund (ETF) is a type of investment fund that tracks an underlying index with a collection of securities. ETFs share similar characteristics to both mutual funds and individual stocks. Like a mutual fund, an ETF represents a basket of stocks or bonds. But with ETFs, investors can trade like common stocks multiple times throughout the day. The number of ETFs available has grown tremendously in the past decade. And with it, various types of ETFs have surfaced. One of them is an ETF focused solely on dividend stocks, which offer numerous attractive benefits especially among investors looking for high yields and more stability from their portfolios.

These potential benefits include:

Diversification: ETFs by nature provide exposure to wide range of sectors. This means that investors are more likely to safeguard against huge losses if a company’s share price drops significantly.
Time-Saving: Investors don’t need to stay up to date on news about individual stocks in the fund. Owning individual stocks requires more time commitment to keep up with new developments.
Income Distribution: Dividend ETFs offer investors a regular income, which helps with monthly budgeting and managing cash flows. Additionally, investors can earn greater total returns if dividends are reinvested every month.

There are two ways that investors receive dividends through ETFs. Understanding the difference between the two can help save investors’ money down the road.

Qualified dividends: These dividends are taxed at the capital gains rate, which vary from 0% to 20% depending on the investor’s total annual income. To receive qualified dividends, the investor must hold the stock for more than 60 days in the 121-day period that starts 60 days before the ex-dividend date.
Ordinary dividends: These dividends are taxed as ordinary income, which may include dividends and other earnings like stock options or real estate investments. In other words, the tax rate for ordinary dividends is at the same level as taxes for federal income or wages. This type of dividends is more common among corporations and other funds.

Dividends and Stock Prices

Investors should consider the total return when it comes to dividend investing. Companies paying high dividends often do so to offset their lack of growth opportunities. Thus, investors should not only look at high dividend yields, but also take into account the capital appreciation to ensure sound total return.

For example, if you invest in dividend stocks, there will be one day when the stock price will fall because of the dividend payment. For example, if a stock trades at $10 per share and pays out a $0.10 quarterly dividend, the stock will be priced at $9.90 at market open.

To determine if you should get a dividend, you need to consider two important dates: ex-dividend date and record date. Ex-dividend date refers to the timing of dividend payments. This date is mostly set one business day prior to the record date. If you do not purchase a dividend stock before the ex-dividend date, then you are not entitled to the dividend payment. Record date is the actual date set by the company’s board of directors to determine which shareholders will receive the dividend payments.

Stock prices tend to increase once the ex-dividend date is set, mainly because investors know that they will receive a dividend if they buy a stock right before the date. Then when the market opens on the ex-dividend date, stock prices will usually drop by the amount of the expected dividend or distribution to be paid.

Dividend Strategies to Consider

Dividend investing can adopt various strategies. The two main types seek to capture high dividend yield or dividend growth.

High Dividend Strategies: Focuses on companies that have paid out high dividend yields, often from mature industries. While the reward is high, especially in the short-term, this strategy is considered risky as companies can’t guarantee a similar payout again the next year or the year after. Furthermore, companies that pay out high dividends may indicate negative fundamentals and poor future outlook.
Dividend Growth Strategies: Focuses on companies that have exhibited a strong historical growth of dividends and mostly consist of large cap companies in mature industries. This strategy seeks long-term growth and invests in companies with decent fundamentals.

Featuring Qraft AI-Enhanced U.S. Large Cap High Dividend ETF (NYSE: HDIV)

Qraft AI-Enhanced U.S. Large Cap High Dividend ETF (NYSE: HDIV) is an actively managed capital growth portfolio of U.S. large cap high dividend stocks, handpicked directly by AI technology. Some investors categorize stocks mainly between capital gains and dividends. If you want capital gains, you can’t have dividends. Likewise, if you want dividends, you shouldn’t expect capital gains. But at Qraft Technologies, Inc., HDIV leverages both strategies with the power of AI technology. By taking into account the importance of total return and focusing on companies that combine both capital gains and high dividend yields, HDIV is primed to potentially bring excess returns.

HDIV was listed on the New York Stock Exchange on 02/27/20. Since inception until 12/31/20, QRFT has outperformed its benchmark S&P 500 Index.

HDIV is available to purchase on various brokerage accounts, including Fidelity, Charles Schwab, TD Ameritrade, E-Trade, Robinhood, and more. Please note that you cannot invest in HDIV directly through Qraft Technologies, Inc.

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Past performance does not guarantee future results.

Investors should consider the investment objectives, risks, charges, and expenses carefully before investing. For a prospectus or summary prospectus with this and other information about the Fund, please call 1–855–973–7880 or visit our website at www.qraftaietf.com. Read the prospectus or summary prospectus carefully before investing.

The Funds are distributed by Foreside Fund Services, LLC

Investing involves risk, including loss or principal. The Qraft Funds are subject to numerous risks including but not limited to: Equity Risk, Sector Risk, Large Cap Risk, Management Risk, and Trading Risk. The Funds rely heavily on a proprietary artificial intelligence selection model as well as data and information supplied by third parties that are utilized by such model. To the extent the model does not perform as designed or as intended, the Fund’s strategy may not be successfully implemented and the Funds may lose value. Additionally, the funds are non-diversified, which means that they may invest more of their assets in the securities of a single issuer or a smaller number of issuers than if they were a diversified fund. As a result, each Fund may be more exposed to the risks associated with and developments affecting an individual issuer or a smaller number of issuers than a fund that invests more widely. A new or smaller fund’s performance may not represent how the fund is expected to or may perform in the long term if and when it becomes larger and has fully implemented its investment strategies. Read the prospectus for additional details regarding risks.

QRAFT AI-Enhanced U.S. High Dividend ETF: Securities that pay dividends, as a group, may be out of favor with the market and underperform the overall equity market or stocks of companies that do not pay dividends. In addition, changes in the dividend policies of the companies held by the Fund or the capital resources available for such company’s dividend payments may adversely affect the Fund. In the event a company reduces or eliminates its dividend, the Fund may not only lose the dividend payout but the stock price of the company may also fall.