The Globe and Mail reports in its Saturday edition that the BMO Covered Call Canadian Banks ETF (ZWB) has an annual dividend yield of 7.5 per cent, based on the most recent monthly distribution. The Globe's John Heinzl writes that seems unintuitive, considering that the Big Six banks yield, on average, a little more than 5 per cent. The answer is in the exchange-traded fund's name -- specifically "covered call." To generate additional income, the fund sells call options on a portion of its underlying bank shares. A call option gives the buyer the right to purchase a stock at a specified strike price before a certain date. (They are referred to as "covered" calls because the ETF owns the stocks on which the options contracts are written, as opposed to "uncovered" or "naked" calls, in which the option seller does not own the stocks.) The downside is that, in a rising market, the fund will have more of its stocks "called away" if the market price rises above the strike price. This is why covered call ETFs tend to do best in flat or falling markets and underperform when stock prices are rising. Keep that in mind; many beaten-down dividend stocks, including banks, have posted double-digit gains in the past few months.