Two Surprise Dividend Hikes from High-Yield ETFs

Covered Calls, ETFs, Investing Strategies, Options
by Tim Plaehn
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Last week, I made several presentations at the MoneyShow conference in Orlando. For one talk, I covered the pros and cons of covered call ETFs. These high-yield ETFs can bring a lot of income into your portfolio.

This week, two of my recommendations announced surprisingly large distributions. I’ll take the money!

Let’s take a look at both…

Covered call ETFs employ an options selling strategy to generate income and dividends from an underlying portfolio. You can find these ETFs based on the major stock market indexes and also commodity ETFs such as crude oil, gold, and silver.

These ETFs pay monthly dividends. The dividends are variable but typically provide yields in the low teens for the index tracking funds, and the commodity funds sometimes yield up into the high teens.

During my MoneyShow presentation, I covered the details of 13 different covered call ETFs. Three of those are recommended investments in my Dividend Hunter service. Last week, two of the three made their monthly dividend announcements, and I was very happily shocked.

The JPMorgan Equity Premium Income ETF (JEPI) announced a $0.60627 distribution paid on November 4. The October dividend was $0.48084. This year, the distributions ranged from $0.38181 to $0.62102. Based on the trailing three dividends, JEPI yields 12.2%. The JP Morgan website shows a 30-day SEC yield of 12.51%.

The JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) declared a $0.68125 distribution, also paid on November 4. The October dividend was $0.37954. JEPQ is a new ETF and has only paid dividends since June. The current yield, based on trailing dividends, is 15.1%. The SEC yield shows an eye-popping 17.51%.

I have no idea how they calculate the SEC yields for a covered call fund, so take those with a very large grain of salt.

Also, these funds pay variable dividends, and a big one this month foretells nothing about next month. If you invest in these funds, be prepared for some monthly payouts to be lower and some, like this month, to be higher.

With my Dividend Hunter recommendations list, I have a balance of stable dividend investments, variable dividend investments, and some dividend growth investments. The goal is to earn a high yield with predictable income.

Author: Tim PlaehnTim is the lead investment research analyst for income and dividend investing at Investors Alley. He is the editor for The Dividend Hunter, an investment advisory focused on creating a high-yield income stream and it's companion service The Dividend Hunter Insiders, Weekly Income Accelerator, a covered call trading service, and for investors looking for long-term total returns from their income investments using stocks with ever-growing dividend payments, he offers Monthly Dividend Multiplier. He co-edits POWR Income with Jay Soloff. Prior to his work with Investors Alley, Tim was a stock broker, a Certified Financial Planner, and F-16 Fighter pilot and instructor with the United States Air Force. During his time in the service he was stationed at various military locations in the U.S., Europe, and Asia. Tim graduated from the United States Air Force Academy with a degree in mathematics. In his free time he tours the United States parks, campgrounds, and wilderness areas in his travel trailer.
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