ETFs
Why I Just Bought These 4 High-Yielding Stocks and ETFs
Realty Income, Vici Properties, and two of JPMorgan’s ETFs are great income plays.
Many high-dividend stocks and exchange-traded funds (ETFs) have lost their luster over the past two years as rising interest rates have boosted returns on bonds, Treasuries and CDs. This trend could continue in 2024 as long as inflation is high.
However, I still think it’s a good idea to accumulate high-yielding stocks and ETFs today in anticipation of lower rates in the future. Here are four of my recent additions: Real estate income (Oh 1.33%), Vici Properties (VICI 0.50%), JPMorgan Equity Premium Income ETF (JEPI -0.18%), and JPMorgan Nasdaq Equity Premium Income ETF (JEPQ -0.44%).
Image source: Getty Images.
Real Estate Income and Vici Properties
Real estate investment trusts (REIT) are companies that buy properties, rent them and share the rental income with their investors. They must also pay out at least 90% of their taxable income as dividends to maintain a favorable tax rate.
Most REITs have collapsed in recent years as rising interest rates have made it more expensive for these companies to purchase properties and issue additional debt. But in the long term, the REIT sector will likely see a recovery as interest rates stabilize and decline. That’s why I recently added two of the most well-known REITs – Realty Income and Vici Properties – to my portfolio.
Realty Income leases its properties to recession-proof retailers like 7-Eleven, Dollar General, Dollar TreeAnd Walmart, and it has maintained its occupancy rate above 96% over the past three decades. It’s not free monthly dividendsand its payout has grown 124 times since its IPO in 1994. It currently pays a forward dividend yield of 5.9%, and its shares still look cheap at 13 times adjusted funds from operations. last year (FFO) per share.
Vici Properties owns casino and entertainment properties across the United States and Canada, and its largest tenants include Caesar’s Entertainment, MGM Resorts, Penn EntertainmentAnd Casinos of the century. It locks these tenants into multi-decade contracts and has maintained a 100% occupancy rate since its IPO in 2018.
Much like Realty Income, Vici pays a forward dividend yield of 5.9% and trades at 13 times its adjusted FFO. However, it pays quarterly dividends instead of monthly. I don’t expect any of these REIT stocks to rebound until interest rates cool, but I’ll be happy to collect and reinvest their dividends for now while the bulls look the other way.
Two JPMorgan Equity Premium Income ETFs
I often write at short notice covered calls on my own shares to generate additional income, but this strategy sometimes backfires when a stock suddenly exceeds the strike price. Therefore, a simple way to automate this process is to invest in an ETF that automatically writes covered calls every month to generate additional income.
Two such ETFs are the JPMorgan Equity Premium Income ETF and the JPMorgan Nasdaq Equity Premium Income ETF. Both funds have low expense ratios of 0.35% and both use equity-linked notes (ELNs), which are tied to covered calls.
The JPMorgan Equity Premium Income ETF holds a diversified basket of 130 stocks and continually writes monthly calls to the market. S&P500. JPMorgan Nasdaq Equity Premium Income holds 98 stocks and writes monthly calls in the market. Nasdaq-100.
Both of these ETFs pay monthly dividends. The Premium Income ETF pays a 30-day SEC yield of 7.5%, while the Nasdaq Equity Premium fund offers an even higher yield of 10.9%. The latter earns such a high return because the Nasdaq-100 is more volatile than the S&P 500 and thus generates higher monthly premiums through its covered call options.
These types of ETFs generally limit their own gains during bull markets thanks to their covered call options, but they can also generate stable monthly payouts with higher returns and less volatility than other types of ETFs focused on the dividends.
I actually purchased these two ETFs to generate extra cash to cover my monthly bills. So I’m not too worried if they lag the market as a whole. They might also be suitable for retirees who simply want to increase their monthly income.
Leo Sun holds positions in JP Morgan Exchange-Traded Fund Trust-JPMorgan Nasdaq Equity Premium Income ETF, JPMorgan Equity Premium Income ETF, Realty Income and Vici Properties. The Motley Fool has positions and recommends Realty Income, Vici Properties and Walmart. The Mad Motley has a disclosure policy.