ETFs
2 High Yield Dividend ETFs to Buy to Generate Passive Income
ETFs are very passive investments.
Exchange-traded funds (ETFs) make it very easy to be a passive investor. They offer instant, built-in diversification, meaning you don’t need to actively build and manage a portfolio.
These characteristics make AND F ideal for those looking to generate passive income. Two great Dividend ETF for passive income are JPMorgan Nasdaq Equity Premium Income ETF (JEPQ 0.31%) and Schwab US Dividend Stock ETF (SCHD 0.15%). ETFs offer high-yielding dividends, making them ideal for producing passive income.
A premium source of income
JPMorgan Nasdaq Equity Premium Income ETF aims to provide investors with a monthly income stream and exposure to the upside of stocks at Nasdaq-100 with less volatility. The ETF primarily generates income by writing securities out of the money purchase options on the Nasdaq-100. Writing call options generates options premium income, which the fund distributes to investors each month.
This lucrative strategy has allowed the fund to generate a higher income yield than other asset classes:
Data source: JPMorgan.
The ETF’s distribution payments vary from month to month based on the options premium income it generates, which tends to fluctuate with market volatility. The fund also generates dividend income by owning Nasdaq-100 stocks, such as Nvidia And Intel.
This stock portfolio provides investors with upside potential for stocks. The fund uses data science and fundamental research to construct a portfolio that is expected to generate strong returns. This approach allowed the ETF to outperform the Nasdaq-100 in the first quarter, as a higher weighting of Nvidia and a lower weighting of Intel boosted its returns.
This actively managed fund charges a very reasonable price ETF expense ratio of 0.35%. It is ideal for those looking for a higher income stream and accepting payments that can vary significantly each month.
Focused on high quality, high dividend stocks
The Schwab US Dividend Equity Fund tracks the Dow Jones US Dividend 100 Index. This index aims to track the performance of the top 100 high dividend stocks which have consistently paid dividends and have a strong financial position relative to their peers. The fund collects these dividends and distributes them to investors every quarter. Its most recent dividend payment had an annualized dividend yield close to 3.5%, significantly higher than the 1.3% dividend yield of a S&P500 index fund.
While the fund holds around a hundred dividend stocks, the top 10 represent almost 40% of its assets:
|
Texas Instruments |
4.1% |
2.6% |
20 consecutive annual increases |
|
Bristol Myers Squibb |
4% |
5.7% |
15 consecutive annual increases |
|
4% |
2.7% |
21 consecutive annual increases |
|
|
4% |
3% |
52 consecutive annual increases |
|
|
4% |
6.7% |
17 consecutive annual increases |
|
|
Cisco Systems |
3.9% |
3.4% |
12 consecutive annual increases |
|
3.9% |
4.1% |
37 consecutive annual increases |
|
|
3.9% |
2.6% |
15 consecutive annual increases |
|
|
Pfizer |
3.9% |
5.8% |
31 consecutive annual increases |
|
Amgen |
3.9% |
2.9% |
12 consecutive annual increases |
Data source: Company press releases and Koyfin.
The fund has a fairly diversified portfolio of dividend stocks. Its top stocks pay dividends with above-average yields. They also have a long track record of increasing their payments.
This passively managed ETF provides access to these high-quality, high-yielding dividend stocks at a low cost (ETF expense ratio of 0.06%). For this reason, investors keep a greater share of the ever-increasing income generated by this fund.
High-quality, high-yielding ETFs
The JPMorgan Nasdaq Equity Premium Income ETF and the Schwab US Dividend Equity ETF are excellent vehicles for generating passive income. They offer higher yield payouts that will provide their investors with more income for every dollar invested. This allows investors to sit back and watch income flow into their accounts.
JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Matt DiLallo has positions in Bristol Myers Squibb, Chevron, Intel, Jp Morgan Exchange-Traded Fund Trust – JPMorgan Nasdaq Equity Premium Income ETF, JPMorgan Chase and Verizon Communications and has the following options: long January 2025 $30 calls on Intel, calls shorts $30 in January 2025 puts on Intel and shorts $50 calls in June 2024 on Intel. The Motley Fool holds positions and recommends Bristol Myers Squibb, Chevron, JPMorgan Chase, Nvidia, Pfizer and Texas Instruments. The Motley Fool recommends Amgen, Intel, Lockheed Martin, and Verizon Communications and recommends the following options: long January 2025 $45 calls on Intel and short May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.