This growth ETF has a massive 11.4% dividend yield and pays monthly

The JPMorgan Equity Premium Income Fund (NYSEARCA:JEPI) has become a hit in the ETF world thanks to its 12.2% dividend yield and monthly payout. While many investors are probably familiar with JEPI, thanks to the considerable fanfare it garnered as it grew to $21.8 billion in assets under management (AUM), they might not be as familiar with the newer one, and a little less so announced cousin of JEPI – the JPMorgan Nasdaq Premium Income ETF (NASDAQ:JEPQ).

There are some notable differences between the two ETFs, but what they have in common are monthly payouts, high returns, and the methods they use to achieve them.

What is JEPQ ETF?

JEPQ is similar to the more established JEPI, but this tech-focused ETF invests specifically in large-cap US growth stocks. Launched in 2022, JEPQ is currently much smaller than JEPI with $1.75 billion in assets under management. Like JEPI, this ETF pays a Dividend on a monthly basis and has an attractive yield, in this case 11.4% (vs. a slightly higher 12.2% for JEPI).

JEPQ’s strategy is to “generate income through a combination of selling options and investing in US large-cap growth stocks to generate a monthly income stream from associated option premiums and stock dividends.” In addition to generating monthly income, JEPQ also seeks to mitigate volatility with the goal of “delivering a significant portion of the returns associated with the Nasdaq 100 Index with less volatility.”

Investors should be aware that this isn’t just your typical plain vanilla ETF. To achieve that outsized return, the fund invests up to 20% of its assets in ELNs (equity-linked notes) and sells “1-month out-of-the-money call options” to generate income and give holders a piece of the upside potential Large cap growth stocks with lower volatility.

This strategy helps generate monthly income and reduce volatility. However, one potential downside that investors should be aware of is that this may limit some of JEPQ’s upside potential in terms of capital appreciation, as it is likely to sacrifice at least some upside potential in exchange for this lower volatility and income.

The story goes on

In a market environment where technology and growth stocks are rising, JEPQ won’t have the same kind of upside potential as many of its underlying holdings, or like the Nasdaq100. For many income investors, however, giving up a few upside points for a steady double-digit dividend payout is a tradeoff they’ll be happy to make.

The fund shares a portfolio manager with JEPI (Hamilton Reiner), who has 36 years’ investment experience. It also has two other portfolio managers who have 10 and 15 years’ investment experience respectively.

JEPQ has an expense ratio of 0.35%, which seems reasonable for an ETF with this level of active management.

JEPQ Top Holdings

While JEPI’s top holdings are occupied by stocks in stable, defensive but slower-growth sectors such as consumer staples and financials, JEPQ has a strong focus on the technology sector.

The fund is fairly diversified at 78 holdings, although JEPQ’s top 10 holdings account for 53.3% of assets, mirroring the makeup of other Nasdaq-focused funds like Invesco QQQ Trust.

Its two largest holdings, tech heavyweights Microsoft and Apple, together account for nearly 25% of its assets. The rest of the top 10 is largely made up of tech mega-caps like Tesla, Nvidia, Amazon, Alphabet, and meta-platforms.

Below is an overview The top stocks of JEPQalong with a set of key data points on each, using TipRanks’ inventory tool.

The top 5 holdings here all have smart scores of 8 out of 10 or higher. The smart score is TipRanks proprietary quantitative stock ranking system that ranks stocks based on eight different market factors. Stocks with a Smart Score of 8 or higher receive Outperform ratings.

What is the price target for JEPQ?

Wall Street analysts are bullish on JEPQ. The ETF receives a moderate buy rating from analysts and the average price target of the JEPQ ETF $49.89 implies ~20% upside potential.

Of the 1,000 ratings on JEPQ, most are bullish – 67.74% are buys, 28.43% are holds, and only 3.83% are sell ratings.

TipRanks uses proprietary technology to create analyst forecasts and price targets for ETFs based on a combination of the individual performance of the underlying assets. Using the Analyst Forecast tool, investors can see the consensus price target and rating for an ETF, as well as the high and low price targets.

TipRanks calculates a weighted average based on combining all ETF holdings. The average price prediction for an ETF is calculated by multiplying the target price of each individual holding by its weighting within the ETF and summing it up.

Aside from its consensus price target, JEPQ also looks attractive based on a number of other TipRanks indicators. It has an ETF Smart Score of 8 out of 10 (an outperform rating), while blogger sentiment and crowd wisdom are also upbeat.

Investor Takeaway

For income investors, especially those looking for a monthly income and a high return that beats the rate of inflation, JEPQ seems like a great tool to add to your portfolio. The return on JEPQ is almost twice the rate of inflation and represents the average return on the market S&P500 or what investors can get by holding 10-year government bonds.

Those investors should also be aware that JEPQ’s structure means that in the event of a tech bull market, it most likely won’t have quite the same upside potential as the growth stocks it invests in. Ultimately, this is a viable ETF for investors who are content to make that trade-off in exchange for the sizeable dividend payout and lower volatility.

I own JEPI and I like the idea of ​​combining a position in JEPI with a position in JEPQ to diversify a bit, have two different streams of monthly payments and add a bit more exposure to growth and technology stocks. I see combining these two ETFs as part of a well-rounded portfolio.

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