One thing investors can be confident about in an uncertain market environment is that the J.P. Morgan Equity Premium Income ETF (JEPI) will pay them a dividend. I’m bullish on this massively popular, actively managed dividend ETF based on its monthly payout, attractive 7.5% dividend yield, and diversified portfolio of blue-chip U.S. stocks. Despite the current market correction gloom, this ETF offers a timely safe haven for investors seeking to avoid elevated market volatility and steep declines in various big-name blue-chip stocks.
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Plus, with a focus on high-quality names and producing income, the conservatively managed ETF is also holding up better than the broader market amidst the current downturn, making it a strong option for investors looking for a port in the storm amidst ongoing volatility.
What is the JEPI ETF’s Strategy?
Launched in May of 2020, JEPI has quickly risen to prominence, accumulating $39.6 billion in assets under management, making it the market’s largest actively managed ETF in a relatively short time frame. According to JPMorgan, JEPI’s goal is “to deliver consistent monthly income and the potential for capital appreciation, aiming to capture a majority of the returns associated with the S&P 500 (SPX) with less volatility.”
The bank says JEPI “is designed to provide distributable income through a combination of dividends and options premium.” The monthly payout and high yield are enticing, but investors should be aware of a caveat. J.P. Morgan explains that “in return for the options premium, investors may forgo a portion of the market’s upside.”
What Type of ETF is JEPI?
JEPI sells covered call options against its holdings. It then uses the premium it receives from selling these calls to pay monthly distributions to its investors. The tradeoff in this strategy is that holders essentially agree to potentially sacrifice some degree of capital appreciation in exchange for this dependable income. If the price of JEPI’s holdings rises above the strike price of the call options it holds, JEPI holders forgo the chance to participate in this additional upside.
You can see this dynamic play out in the results. For example, in a roaring bull market like 2024, the broad market S&P 500 ETF (VOO) produced a total return of 25%, nearly doubling JEPI’s total return of 12.6% (inclusive of dividends). On the other hand, this strategy also means that JEPI has the potential to hold up better than the broader market in more challenging times. Case in point, JEPI is down just 0.4% year to date, significantly better than VOO’s 4.9% decline. During 2022, another challenging environment for stocks, JEPI lost just 3.5%, vastly outperforming VOO’s 18.2% loss for the year.
That said, investors should know this strategy’s pros and cons, as with any investment opportunity. So long as investors are comfortable with potentially leaving some future upside from capital appreciation on the table in exchange for this consistent income and high yield, JEPI can serve as a valuable tool for creating income within one’s portfolio.
JEPI’s Sizable Monthly Dividend
In addition to the appeal of its cadence of monthly payouts, JEPI features an attractive 7.5% dividend yield, which will draw the attention of any income investor. This 7.5% yield is nearly six times that of the S&P 500, which currently yields 1.3%. It’s also much higher than the return provided by 10-year treasuries, which currently yield 4.2%.
Investors should note that JEPI’s dividend can vary from month to month and is not set in stone, but it is paid each month like clockwork. For example, using TipRanks’ dividend tools, we can see that monthly payouts have ranged from $0.29 per share over the past year to $0.40 per share.
Diversified Portfolio of Blue Chip Stocks
By holding 115 stocks, JEPI offers investors strong diversification. Furthermore, JEPI’s top 10 holdings account for just 17.8% of the fund, and no single position has a weighting of greater than 2%, so there is minimal concentration risk here.
You can access JEPI’s top 10 holdings using the table from TipRanks’ holdings tool below. As you can see, JEPI’s top holding, Mastercard (MA), has a weighting of just 1.96%.
JEPI owns many blue-chip U.S. stocks, including its top two holdings, global payment networks like Mastercard and Visa (V), plus other reliably dependable U.S. dividend stocks like McDonald’s (MCD) and AbbVie (ABBV).
Readers may be surprised to encounter some non-dividend paying stocks among JEPI’s top holdings, like Amazon (AMZN), or dividend stocks with very low yields, like Meta Platforms (META), but that’s because JEPI sells covered calls to generate much of its income. It can do this by selling covered Amazon and Meta Platforms calls.
All in all, JEPI owns a diversified, well-rounded portfolio of well-known, well-run blue-chip stocks, making it a smart choice for conservative investors in a volatile environment.
Is JEPI a Good Fund to Invest In?
JEPI carries an expense ratio of 0.35%, meaning it charges $35 in annual fees on a $10,000 investment. This may sound a bit high, especially compared to some of the market’s most popular low-cost index ETFs, but it’s worth remembering that JEPI is an actively managed fund running a relatively active strategy, so its costs are going to be higher than that of a run-of-the-mill broad market index fund. For investors looking for the type of monthly payout, high yield, and stability that JEPI provides, the moderately high expense ratio is worth the price of admission.
Is JEPI Stock a Buy, According to Analysts?
Turning to Wall Street, JEPI earns a Moderate Buy consensus rating based on 105 Buys, 10 Holds, and zero Sell ratings assigned in the past three months. The average analyst JEPI price target of $67.27 implies a ~18% upside potential from current levels.
Maintaining Returns in Risk-Off Markets
While investors forfeit some upside from capital appreciation when investing in JEPI, it is a great option for investors looking to add consistent monthly income, not to mention an attractive yield, to their portfolios. The ongoing macroeconomic strife, partially fuelled by Donald Trump’s shenanigans in recent weeks, may continue for some time, considering the effects of incoming tariffs and their likely entailments on various stock sectors. Therefore, an investment in JEPI makes sense in the current risk-off market environment.
Given the ETF’s strategy and required tradeoff, I believe JEPI is best suited as part of a well-rounded portfolio. I’m bullish on JEPI based on its monthly payout cadence, attractive 7.35% dividend yield, and diversified portfolio of blue-chip U.S. stocks.
Additionally, this portfolio of sensible, high-quality stocks means that JEPI has held up better than the broader market during the current downturn, making it an appealing option for conservative investors looking to shield their portfolios from heightened volatility.