There are few things investors enjoy more than receiving a dividend payment each quarter. However, a popular ETF from JPMorgan, the JPMorgan Equity Premium Income ETF (NYSEARCA:JEPI), takes this approach and does it one better by paying investors a dividend on a monthly basis.
Not only that, but JEPI’s dividend yield is a massive 11.8% on a trailing basis, which is more than seven times the average yield for the S&P 500 of 1.65% and nearly three times the yield that investors can get from 10-year treasuries. Now, let’s take a look at JEPI’s surging popularity, its strategy, how it achieves this double-digit payout, and the holdings that comprise this attractive ETF.
The JPMorgan Equity Premium Income ETF has quickly garnered over $21 billion in assets under management (AUM) and has become one of the most-discussed ETFs in the market since bursting onto the scene in May 2020. JEPI was one of the most popular ETFs of 2022, bringing in record inflows for an actively-managed ETF of nearly $13 billion. Just this past week, JEPI was the top ETF in the market in terms of attracting new capital, bringing in over $500 million in weekly inflows.
The ETF’s popularity can be attributed to its double-digit dividend yield, its monthly dividend, and the fact that it comes from a blue-chip sponsor, JPMorgan. The 11.8% dividend yield and payout schedule hold significant appeal to many investors — holders essentially receive nearly 1% of their total investment each month in the form of a dividend.
What is JEPI ETF Exactly?
JEPI’s strategy is to generate income while limiting volatility and downside. According to JPMorgan, JEPI “generates income through a combination of selling options and investing in U.S. large-cap stocks, seeking to deliver 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 does this by investing up to 20% of its assets into ELNs (equity-linked notes) and selling call options with exposure to the S&P 500. This strategy did its job well last year, as JEPI fell just 3.5% versus a much larger 19.6% decline for the S&P 500.
However, it should be noted that this strategy may also limit some of JEPI’s upside when stocks are surging. Case in point, the S&P 500 and Nasdaq are up 6.2% and 13.1% year-to-date, respectively, while JEPI is down 0.6% so far in 2023. That said, for investors who are more interested in income than capital appreciation, it’s hard to beat JEPI. Still, there’s a place for both in investor portfolios, which is why I own JEPI as part of a balanced portfolio.
JEPI is well-diversified, with holdings spread out across 115 U.S.-based stocks. Its top 10 holdings make up a mere 17.1% of assets, and no individual stock makes up more than 1.97% of the fund.
JEPI ETF’s top holdings 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 through soft drink giants Coca-Cola and Pepsi, as well as candy company Hershey. Pepsi and Coca-Cola are Dividend Kings that have been paying and increasing their dividend payouts for 50 and 60 years, respectively, so these are the types of stocks that you want to own in a dividend ETF.
Financials are also well-represented — Progressive, an insurer, is the largest holding, and it is joined by another insurance company, Travelers, in the top 10. Meanwhile, payment networks like Visa and Mastercard make an appearance as well.
Further, the healthcare industry has a heavy presence in the top holdings through stocks like AbbVie and Bristol Myers. The healthcare industry is traditionally thought of as a defensive business, and healthcare spending is less correlated to the overall economy, so this is an advantageous sector for a dividend fund to target.
Note that JEPI also owns some non-dividend stocks, such as Amazon and Alphabet. It likely owns 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 a look at the JEPI ETF’s top holdings, taken from the ETF’s holdings page:
What is the Price Target for JEPI Stock?
In addition to this double-digit dividend yield, the JPMorgan Equity Premium Income ETF also has some room for upside, according to analysts. The average JEPI stock price target of $60.90 is 12.5% higher than JEPI’s current price. Combine this upside potential with JEPI’s 11.8% yield, 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 the individual performances of the underlying assets. By using the Analyst Forecast tool, investors can see the consensus price target and rating for an ETF, as well as the highest and lowest price targets.
TipRanks calculates a weighted average based on the combination of all of the ETFs’ holdings. The average price forecast for an ETF is calculated by multiplying each individual holding’s price target by its weighting 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, increasing hedge fund involvement, and positive crowd wisdom.
In addition to these attractive features, JEPI also has a reasonable expense ratio of 0.35%.
The main risk of an ETF like this is that, as discussed above, JEPI’s approach means that it could lag the broader market during a bull market, as evidenced by this year’s underperformance versus the S&P 500 and the Nasdaq.
However, it never hurts to add some ballast to your portfolio. The market has been volatile recently, and if the market takes a turn for the worse as 2023 unfolds, JEPI should hold up well, as it did last year.
The other risk here is that as a fairly new ETF, JEPI doesn’t 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 years of experience, respectively, and JPMorgan is a blue-chip asset manager, so this isn’t a concern that keeps me up at night.
For investors seeking reliable monthly income, it’s hard to beat JEPI, and its double-digit yield stands out in the current market environment. I own JEPI and view it as a key cornerstone of my portfolio that gives me some downside protection, exposure to a large swath of the U.S. economy, and, best of all, a steady stream of monthly payments that add up to a well-above-average 11.8% yield over the course of the year.