Forget JEPI – 3 Monthly Dividend ETFs With Higher Yield and Upside

Income investors have flocked to the JPMorgan Equity Premium Income ETF (NYSEARCA:JEPI) for years, and it is easy to see why. You get a juicy 8% dividend yield on top of limited participation in the market’s upside. However, alternatives like NEOS S&P 500 High Income ETF (BATS:SPYI), NEOS NASDAQ-100 High Income ETF (NASDAQ:QQQI), and Roundhill S&P 500 Target 20 Managed Distribution ETF (NYSEARCA:XPAY) have higher yields and are worth looking into. These ETFs have been remarkably successful due to the broader market rallying continuously over the past four years. That success has drawn in other issuers that have copied the recipe, and they have managed to do it better.

Thus, buying JEPI as the default covered-call ETF is a bad idea. A higher yield will snowball into a larger total return if you expect the market to keep rallying. If your goal is to keep the cash flow coming while staying open to the next leg of the market rally, these funds deserve the first look.

NEOS S&P 500 High Income ETF (SPYI)

The NEOS S&P 500 High Income ETF holds the index and runs an index call-options overlay to generate high income. It concentrates in industries roughly to the same extent as the S&P 500 itself. The differentiator between the SPYI and JEPI is that SPYI is more passive and is a more “standard” covered call ETF based on an index.

SPYI is also more aggressive than the JEPI, which tries to be more passive and defensive than the broader market. It has a dividend yield of 11.57% paid monthly and an expense ratio of 0.68%, or $68 per $10,000 invested.

SPYI has done better than JEPI due to the S&P 500 rallying. It is up 3.37% in the year on top of the yield, whereas JEPI is flat. A continued tech rally can take SPYI much further due to its 34.32% tech exposure. JEPI’s tech exposure is just 18.74%. Of course, a tech correction would be a bigger drag on SPYI, but it’s likely to come with a broad-based decline that can bring down JEPI too.

NEOS NASDAQ-100(R) High Income ETF (QQQI)

QQQI holds and sells call options on the Nasdaq-100 stocks. The configuration is more or less the same as SPYI, with the target index being different. In fact, even the expense ratio is the same at 0.68%. The difference is the yield, which is higher due to the Nasdaq-100 being more aggressive than the S&P 500.

If you believe the tech sector will continue making strong progress in the coming years and outperform the broader market, buying QQQI will get you a better deal than most competitors offer.

The yield is 13.69%. Nasdaq-100 options are more expensive, and the index itself has done better over the past two decades. This is likely to let QQQI yield 2-3% more than SPYI and 5-6% more than ETFs like JEPI.

The drawback again is that a tech-specific selloff will hurt it disproportionately more. If you think such a selloff is unlikely to happen in the near term, QQQI is a solid buy.

Roundhill S&P 500 Target 20 Managed Distribution ETF (XPAY)

XPAY comes with the highest dividend yield in this list at 21.2%. If income is all you’re looking for, this should be your go-to. The capital gains are not as aggressive, and you will participate less in the broader market’s upside, but a monthly yield that high is hard to ignore.

It may be especially appealing to investors who understand return of capital (or ROC) mechanics. ROC is generally not taxable in the year received (unless it exceeds basis), but it reduces cost basis and can increase future taxable gains when shares are sold. It can also fit investors who are intentionally running a managed payout plan (by spending distributions) and are comfortable with derivatives and active management.

I wouldn’t hold XPAY long-term, since it only makes sense if your goal is monthly cash flow first, and long-term total returns aren’t a goal.

The expense ratio is 0.49%.