In the evolving landscape of investment, exchange-traded funds (ETFs) have become a significant alternative for income-focused investors. While traditional value stocks like Dividend Aristocrats and Dividend Kings have long been preferred for high-yield dividends, the growth of ETFs over the past twenty years has provided new avenues for reliable passive income. These funds offer enhanced yield and diversification, with over $8 trillion in assets under management globally. Among the plethora of ETFs available, the JPMorgan Equity Premium Income ETF (JEPI) and the Schwab US Dividend Equity ETF (SCHD) have emerged as popular choices for investors seeking consistent dividend returns.
ETFs have gained considerable traction as they offer distinct advantages over traditional dividend stocks. Their ability to provide diversified exposure to various sectors and indices appeals to those looking for stability in yield. Historically, ETFs such as JEPI and SCHD have captured investor interest due to their strategic approaches. JEPI, introduced by JPMorgan in 2020, leverages a covered call strategy, whereas SCHD, launched by Charles Schwab in 2011, follows a passive management style, tracking the Dow Jones U.S. Dividend 100 Index. Both funds, despite their different methodologies, have consistently provided yields that outperform many individual dividend stocks.
What Makes JEPI Stand Out?
JEPI, an actively managed fund, employs a covered call strategy that has enabled it to offer a significant dividend yield. This strategy involves selling call options on its holdings, allowing it to distribute income monthly. As of the latest data, JEPI boasts an impressive 12-month rolling dividend yield of 7.55%. Its portfolio comprises U.S. large-cap stocks, which ensures diversification and reduced volatility for investors. Some of its major holdings include Trane Technologies PLC, Meta (NASDAQ:META) Platforms Inc., and Amazon (NASDAQ:AMZN).com Inc.
Why Choose SCHD?
SCHD, on the other hand, offers a more traditional approach by tracking established dividend-yielding stocks within the Dow Jones U.S. Dividend 100 Index. Its passive strategy focuses on stocks with robust fundamentals and consistent dividend growth. SCHD provides quarterly distributions with a trailing 12-month yield of 3.34%. This ETF is appreciated for its lower expense ratio of 0.06%, making it a cost-effective choice for investors. Its primary holdings feature companies like Home Depot Inc., Chevron Corp., and Pfizer Inc.
Expense ratios are a crucial consideration for investors, as they can significantly impact returns. JEPI’s expense ratio of 0.35% reflects its active management and options strategy, whereas SCHD’s 0.06% ratio is indicative of its passive management. Investors are advised to consider these fees, as higher expense ratios can erode returns over time.
Both funds have shown resilience in volatile markets. JEPI delivered notable performance amid the 2022 bear market with minimal losses compared to broader indices. SCHD, with its focus on established dividend payers, also demonstrated strength during downturns, offering a degree of protection against market fluctuations.
For those seeking passive income through high-yield ETFs, JEPI and SCHD offer viable choices, each with distinct benefits. While JEPI provides higher monthly payouts, SCHD’s strategy offers steady appreciation and lower costs. Their proven track records in sustaining yields and managing expenses make them attractive options for income-oriented portfolios.
