Latest news with #highyieldETFs
Yahoo
29-06-2025
- Business
- Yahoo
I Have $4 Million -- Will My Plan to Invest for $27,000 Monthly Work?
Writing "covered" call options generates immediate, tangible net income. This income is also inconsistent, and the strategy always underperforms long-term market gains. High-yield ETFs that rely on selling options for distributable income should only make up a minor part of an income portfolio's allocation. 10 stocks we like better than JPMorgan Nasdaq Equity Premium Income ETF › As always, The Motley Fool cannot and does not provide personalized investing or financial advice. This information is for informational and educational purposes only and is not a substitute for professional financial advice. Always seek the guidance of a qualified financial advisor for any questions regarding your personal financial situation. If you'd like to submit your question for feedback, you can do so here. High-yield exchange-traded funds (ETFs) aren't exactly new, including ones that generate income by selling -- or "writing" -- options on the stocks held within the fund. As the market becomes less predictable and more difficult to navigate, though, income-producing investments that generate lots of immediate cash are becoming very popular, and understandably so. Once this cash is in your proverbial pocket, it's no longer at (much) risk of unexpectedly losing value. As is always the case with any investment, however, these particular investments come with a downside that must not only be understood but also managed. A well-funded individual investor recently asked an entire Reddit community what it thought about a plan to invest $4 million in a trio of high-yielding ETFs, two of which regularly use the aforementioned strategy of selling call options on stocks the funds already own. Will this actually work? What Am I missing?by u/Ddash-3 in dividends Here's an answer highlighting some other important details that similarly minded investors may want to consider before plowing into this plan. What does it mean to sell covered call options? A call option is a bet that a particular security or index will be at or above a specific price by a specific point in the future. As is the case with any bet, though, you pay to make it. Call options -- like their bearish counterpart "put" options -- are also securities in and of themselves, and are bought and sold at ever-changing prices that reflect the market's ever-changing assumptions about their value. As with most stocks, you don't actually have to buy an option first to sell it at a higher price later. You can sell or "write" an option you don't already own and collect the cash proceeds, and then buy or "cover" that trade later at what's hopefully a lower price. In JPMorgan Chase's case, with its JPMorgan Nasdaq Equity Premium Income ETF (NASDAQ: JEPQ) and its JPMorgan Equity Premium Income ETF (NYSEMKT: JEPI), the plan isn't to buy the call options it's selling back at a later date. The goal is largely to let that option expire altogether, which effectively closes out the position with a buy price of nothing. All the initial sale proceeds become profit. But what if the call in question gains in value before it expires? JPMorgan is "covered" in the sense that it already owns shares that it can deliver if the call options it writes are exercised against it. (A call option is also a contract to deliver shares of a particular stock, after all, if the buyer of that call so chooses.) Fund managers can also exit short-term option trades at a loss and just move on to the next one. For both of these ETFs, this option-selling is constantly happening, generating cash flow that's dished out to investors on a monthly basis. As of the latest look, JEPQ's annualized payout yield stands at 14.5%, while JEPI's is an impressive 11.4%. Not bad. You can certainly see why this investor likes the idea of leaning into these two ETFs with his $4 million. These funds aren't without their downsides, though. Writing covered calls isn't a strategy that consistently beats the market in the long run. It just monetizes the market's long-term growth by converting what would have otherwise been capital gains into tangible cash. Even then, it doesn't completely keep up. As the chart below illustrates, despite its big dividend payments since its launch in mid-2022, the total return on the JPMorgan Nasdaq Equity Premium Income ETF still lags its benchmark Nasdaq-100 index. The JPMorgan Equity Premium Income ETF's net performance has been just as disappointing compared to its benchmark in the S&P 500 since its inception in 2020. It's also worth noting that while the annualized yields on both funds are currently sky-high, that's based on dividends that haven't exactly grown ... or even been consistent. Our investor's plan to invest $17,000 worth of excess monthly investment income into the Vanguard S&P 500 ETF (NYSEMKT: VOO) may be challenged by the sheer inconsistency of these two ETFs' dividend payments. In some months, it could be even less than the $10,000 the investor needs to live on. Blame the strategy of selling call options on stocks you already own, mostly. It works better some times than others, and sometimes, it doesn't work at all. Covered call strategies notoriously underperform when the market is rallying the most, for instance, by bolstering the value of the call options you've already sold that you now want to lose value. Also note that neither of these funds is particularly tax-friendly, by virtue of perpetually generating a fair amount of taxable income. In this vein, our investor didn't clarify how much of that $4 million was in an IRA, or how old they are. Some of that presumed $27,000 in monthly investment income could be subject to taxation, though, and that assumes the investor won't also be penalized for making early withdrawals from retirement accounts. This will reduce the total amount of net income the investments are generating. So why would anyone want to own either of these two ETFs, or any like them? Don't dismiss the value of owning an income-producing investment, even if that income can be inconsistent, or even if your net performance ultimately lags that of the overall market. Bonds underperform stocks too, but they still have their place in plenty of people's portfolios. The inconsistent income that the JPMorgan Nasdaq Equity Premium Income ETF and the JPMorgan Equity Premium Income ETF offer doesn't make them a great option for investors who need predictable cash flow. If you've got enough accessible cash to smooth out the rough edges, however, these two funds have their place, too. The basic premise is reasonable enough as long as you know that exchange-traded funds like the JPMorgan Nasdaq Equity Premium Income ETF and the JPMorgan Equity Premium Income ETF will ultimately underperform their benchmarks despite their strong yields. They're not growth investments. They're income investments, and they do that job nicely, even if not consistently. In this instance, however, accepting a little less real-time cash return in exchange for far more predictable cash flow makes sense. While it will be tough to match the big yields that JEPI and JEPQ currently boast, you can get reasonably close with alternatives like preferred stocks and higher-yield "junk" bonds that would dramatically diversify this investor's holdings. A bit more exposure to the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) already in the hypothetical portfolio would help, too. It's yielding just under 4% right now, which isn't much compared to JEPI and JEPQ. But it's a yield based on dividend payments that are much more consistent. And predictability means a lot when your portfolio needs to perform a minimum way right out of the gate. This particular investor may also want to consider positioning for a little more capital appreciation that can't happen with the current plan. The investor didn't mention their age, but if they're going to live another 15 years or more, inflation and a couple of unexpected black swan events could take a sizable bite out of their future buying power. Diversifying the kinds of strategies they're using will help just as much as diversifying the kinds of stocks they're holding. Bottom line? There are no market-beating tricks in the long run. Successful investing is still largely a game of patience won by people who know and understand all their risks and manage them accordingly with diversification. Before you buy stock in JPMorgan Nasdaq Equity Premium Income ETF, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and JPMorgan Nasdaq Equity Premium Income ETF wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $713,547!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $966,931!* Now, it's worth noting Stock Advisor's total average return is 1,062% — a market-crushing outperformance compared to 177% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of June 23, 2025 JPMorgan Chase is an advertising partner of Motley Fool Money. James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy. I Have $4 Million -- Will My Plan to Invest for $27,000 Monthly Work? was originally published by The Motley Fool
Yahoo
27-06-2025
- Business
- Yahoo
3 ETFs Offering Juicy Dividend Yields of 15% or Higher
With inflation still running hot, investors are searching for new ways to generate meaningful income. This search has sparked a surge of interest in high-yield ETFs, funds designed to offer juicy yields using innovative strategies. Three in particular currently offer up yields of more than 15%, earning them a second look. Let's dive into these three right now. Is Walmart Stock a Buy Right Now? What Investors Need to Know for July 2025. 3 ETFs Offering Juicy Dividend Yields of 15% or Higher FedEx Just Hiked Its Dividend 5%. Should You Buy FDX Stock Here? Stop Missing Market Moves: Get the FREE Barchart Brief – your midday dose of stock movers, trending sectors, and actionable trade ideas, delivered right to your inbox. Sign Up Now! NEOS Funds introduced the Nasdaq-100 High Income ETF (QQQI) with a clear focus on delivering monthly income. QQQI has a forward annual payout of $7.65 and a yield of 15%, earning it a spot on this generous list. Since its inception in January 2024, QQQI has tracked the Nasdaq-100 Index ($IUXX) with a data-driven call option overlay. The fund doesn't use leverage. Instead, it sells covered calls on Nasdaq-100 constituents to collect premiums, which helps fund those monthly payouts. With managed assets of $1.44 billion and a monthly trading volume of over 2 million shares, QQQI is both sizable and liquid. The expense ratio is set at 0.68%, a reasonable cost for an actively managed, options-based strategy. QQQI is down roughly 1.2% for the year to date. The Roundhill S&P 500 0DTE Covered Call Strategy ETF (XDTE), managed by Roundhill Investments, began trading in March 2024 with a clear mandate to generate weekly income. The annualized forward payout stands at $11.57 and XDTE currently has a forward yield of 27%. XDTE is down just over 12% in the year to date. XDTE tracks the S&P 500 Index ($SPX) by establishing a synthetic long position through deep-in-the-money FLEX options, then sells out-of-the-money zero-days-to-expiry (0DTE) call options each morning to generate premium income. This disciplined, active strategy aims to deliver a steady stream of weekly payouts while capturing most of the S&P 500's overnight gains, though it caps upside potential during sharp rallies. Distributions in excess of earnings are treated as return of capital, which is an important consideration for those focused on long-term capital preservation. XDTE manages $378 million in assets and carries an expense ratio of 0.97%. The YieldMax S&P 500 0DTE Covered Call Strategy ETF (SDTY) is part of the YieldMax ETFs family, managed by Elevate Shares, and tracks the S&P 500 Index. SDTY currently has a forward annualized payout of $11.74 and a yield of 26.9%, providing weekly income, albeit with a unique approach and its own set of risks. Launched in February 2025, SDTY employs a synthetic covered call strategy, combining deep-in-the-money call options for S&P 500 exposure with the sale of out-of-the-money, zero-days-to-expiry (0DTE) call options to generate premium income. This method means SDTY does not own physical stocks, but rather uses derivatives to mirror the index's price return while selling 0DTE calls each day to capture income from market volatility. The result is a fund that provides exposure to S&P 500 gains, though with upside capped by the strike price of the options sold. With managed assets around $12.4 million and a daily trading volume just over 10,900 shares, SDTY is still relatively small and less liquid than some of its peers, but its structure is transparent and its strategy is well-defined. SDTY is down just under 5% over the past three months, and its 1.01% expense ratio is reasonable for an actively managed, options-based approach. High-yield ETFs like QQQI, XDTE, and SDTY provide juicy income at a time when such payouts are hard to come by. With the Federal Reserve keeping interest rates at still-high levels, these funds are likely to remain popular among those looking for regular cash flow. The Fed's hesitation to lower rates, even as the economy faces challenges, means traditional fixed-income options still lag behind. That's why these high-yield ETFs stand out for anyone wanting strong monthly or weekly payouts. On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
