CAPITAL GAINS VERSUS DIVIDENDS

In an earlier post, I mentioned my interest in getting involved in trading options in the form of covered calls.  While I don't have the cash available to do this at the present time, I've discovered there are funds specializing in selling covered calls to generate income for shareholders.  I read an article today comparing an ETF I'm interested in buying in to with a CEF.  The author made the case that it would be foolish to go with the un-managed ETF when the "professionally" managed CEF more closely tracked the performance of the covered call market, generating more capital gains for its' shareholders.

Well here's my take on that.  As someone who's invested through lots of market ups and downs, I see very little advantage to favoring an investment for potential capital gains.  Capital gains can only be collected if you sell some or all of your shares, otherwise they're just paper profits.  On the other hand, dividends can be collected as cash payments from the get go, either buying more shares or to use however you see fit.  Since the closed end fund's (CEF) fees were extremely higher than the exchange traded fund (ETF) I'm interested in and the dividend yield is 3% higher, I think it would be better to save on fees and take more cash up front.  Anyone who has invested for any length of time realizes how quickly share price gains can evaporate in a down market, but while dividends might be reduced, it's a lot less likely they'll be discontinued altogether.  When I read this article, I couldn't help but wonder why someone would encourage you to pay more in fees and just hope for the market price to continue to rise.  I'll be buying into the ETF instead and collecting a nice monthly dividend, which by the way had also increased in price.

As far as I'm concerned, if it's a choice of investing for capital gains or dividends, I'm always going to go for the dividends.  Capital gains tend to follow stocks paying reliable dividends, so whatever I earn from higher share prices is just icing on the cake.