There are few things investors value more than receiving a dividend payment every quarter. However, a popular JPMorgan ETF, the JPMorgan Equity Premium Income ETF (NYSEARCA: JEPI), takes this approach and makes it even better by paying investors a dividend on a monthly basis.
Not only that, but JEPI dividend yield is a whopping 11.8% on a rolling basis, which is more than seven times the average return of the S&P500 of 1.65% and nearly three times the yield that investors can get from 10-year Treasury bills. Now let’s take a look at JEPI’s growing popularity, its strategy, how it achieves that double-digit payout, and the holdings that make up this attractive ETF.
Growing popularity
The JPMorgan Equity Premium Income ETF quickly garnered over $21 billion in assets under management (AUM) and became one of the most talked about ETFs on the market since bursting onto the scene in May 2020. JEPI was the one of the most popular ETFs of 2022, generating record inflows for an actively managed ETF of nearly $13 billion. Last week, JEPI was the market’s top ETF in terms of attracting new capital, generating more than $500 million in weekly inflows.
The ETF’s popularity can be attributed to its double-digit dividend yield, monthly dividend, and the fact that it comes from blue-chip sponsor JPMorgan. The 11.8% dividend yield and payout schedule are very attractive to many investors – holders essentially receive almost 1% of their total investment every month in the form of a dividend.
What exactly is the JEPI ETF?
JEPI’s strategy is to generate income while limiting volatility and declines. According to JPMorgan, JEPI “generates income through a combination of option writing and investing in large-cap U.S. stocks, seeking to generate a monthly income stream from associated option premiums and stock dividends. “. JEPI also “seeks to deliver a significant portion of the returns associated with the S&P 500 Index with less volatility.”
JEPI achieves this by investing up to 20% of its assets in ELNs (equity-linked bonds) and selling call options with exposure to the S&P 500. This strategy has worked well over the past year, as JEPI fell only 3.5% against a larger good. 19.6% drop for the S&P 500.
However, it should be noted that this strategy may also limit some of JEPI’s upside as stocks rise. For example, the S&P 500 and Nasdaq are up 6.2% and 13.1% year-to-date, respectively, while the JEPI is down 0.6% so far in 2023. That said, for investors who are more interested in income than capital appreciation, JEPI is hard to beat. Yet there is a place for both in investors’ portfolios, which is why I own JEPI as part of a balanced portfolio.
Participations of JEPI
JEPI is well-diversified, with holdings spread across 115 US-based stocks. Its top 10 holdings represent just 17.1% of assets, and no individual stock represents more than 1.97% of the fund.
Top holdings of JEPI ETF are made up of a mix of stocks from traditionally stable and defensive industries known for their dividends. The consumer staples segment is well represented in the top 10 by soft drink giants Coca-Cola and Pepsi, as well as confectionery company Hershey. Pepsi and Coca-Cola have been dividend kings that have been paying and growing their dividends for 50 and 60 years, respectively, so these are the types of stocks you want to own in a dividend ETF.
Financial services are also well represented – Progressive, an insurer, is the largest holding company, and it is joined by another insurance company, Travelers, in the top 10. Meanwhile, payment networks like Visa and Mastercard are also appearing.
Additionally, the healthcare sector has a strong presence in major stocks thanks to stocks like AbbVie and Bristol Myers. The healthcare sector is traditionally viewed as a defensive business, and healthcare spending is less correlated to the overall economy, so it is an advantageous sector for a dividend fund to target.
Note that JEPI also owns stocks without dividends, such as Amazon and Alphabet. He likely holds these types of names to generate income using their derivatives (options) and to gain more exposure to the upside potential of growth stocks and the S&P 500 as a whole.
Below is an overview of the top holdings of the JEPI ETF, taken from the ETF’s holdings page:
What is the target price for the JEPI share?
On top of that double-digit dividend yield, the JPMorgan Equity Premium Income ETF also has room for upside, analysts say. The average price target of the JEPI share of $60.90 is 12.5% higher than JEPI’s current price. Combine this upside potential with JEPI’s 11.8% return, and you theoretically arrive at a compelling one-year return for the ETF.
TipRanks uses proprietary technology to compile analyst forecasts and price targets for ETFs based on a combination of individual underlying asset performance. Using the Analyst Forecast tool, investors can see an ETF’s consensus price target and rating, as well as the highest and lowest price targets.
TipRanks calculates a weighted average based on the combination of all ETF holdings. The average price forecast for an ETF is calculated by multiplying the target price of each individual position by its weight within the ETF.
ETFs also get Smart Score ratings, and JEPI has an ETF Smart Score of 7 out of 10. Additionally, JEPI looks attractive based on a number of other TipRanks indicators, including bullish blogger sentiment, l increased involvement of hedge funds and the positive wisdom of the crowd.
Along with these attractive features, JEPI also has a reasonable expense ratio of 0.35%.
The risks of JEPI
The main risk with an ETF like this is that, as noted above, JEPI’s approach means that it could lag the broader market during a bull market, as evidenced by under-pricing. performance this year relative to the S&P 500 and the Nasdaq.
However, it never hurts to add ballast to your wallet. The market has been volatile recently, and if the market turns sour as 2023 unfolds, JEPI should hold up well, as it did last year.
The other risk here is that as a relatively new ETF, JEPI does not have a long track record of returns, but the portfolio managers in charge of the fund, Hamilton Reiner and Raffaele Zingone, have 36 and 32 respectively. years of experience, and JPMorgan is a top-notch asset manager, so it’s not an issue that keeps me up at night.
For investors looking for reliable monthly income, JEPI is hard to beat, and its double-digit yield stands out in the current market environment. I own JEPI and consider it a cornerstone of my portfolio that gives me some downside protection, exposure to a broad swath of the US economy, and best of all, a steady stream of monthly payments that add up to a well above -average return of 11.8% over the year.