The ETF That Outperforms VYM and Delivers Consistent Monthly Payouts

Dividend exchange-traded funds have become a popular way to own a diverse set of stocks while generating steady, passive income. There are hundreds of dividend stocks to choose from, but two titans stand out in the space. The Vanguard High Dividend Yield ETF (NYSEARCA:VYM) is a dividend-focused fund with a yield of 2.45%. It pays quarterly dividends and holds about 500 stocks. 

VYM focuses on the financial sector and the tech sector. However, there’s another ETF that outperforms VYM and is worth consideration. JPMorgan Equity Premium Income (NYSEARCA:JEPI) is a fund that provides exposure to high-quality businesses and has a yield of 7.17%. Additionally, it pays monthly dividends. This article explores how JEPI is a smarter choice than VYM. 

The fund 

VYM tracks the performance of the FTSE High Dividend Yield index and invests in large-cap stocks that pay above-average dividends. It holds about 570 stocks and aims to provide exposure to dividend-paying stocks. It has a yield of 2.45% and an expense ratio of 0.06%. Its assets under management is $65.9 billion. 

On the other hand, JEPI invests about 80% in stocks from the S&P 500 and the remainder in equity-linked notes that offer an exposure to written call options on the same index. This allows it to maintain a higher yield even during market uncertainty. Writing options to generate income is a smart way to boost the returns. Its asset under management is $41.1 billion. 

The right mix 

JP Morgan Equity Premium Income ETF offers diversification with 124 stocks and holds top-quality businesses. The fund focuses on quality over quantity and has built an impressive portfolio with stalwarts like Microsoft, Nvidia, Mastercard, and The Southern Company. 

It has an expense ratio of 0.35% and uses options trading strategies to maintain a high dividend yield. JEPI pays monthly dividends instead of the typical quarterly payout. It generated a 12-month rolling dividend yield of 8.13% and has generated a cumulative 3-year return of 44.26%. JEPI also offers tax advantages since it does not treat the dividend payments as distributed capital gains. This is another advantage over VYM. 

JEPI has the highest allocation in the technology sector (15.6%), followed by healthcare (12.4%) and financials (12.3%). Its top 10 holdings constitute 16% of the portfolio and include the biggest large-cap companies, such as Nvidia, Microsoft, and Meta Platforms. That said, it also holds strong dividend-paying companies, including NextEra Energy and Johnson & Johnson. 

ETFs at a glance 

The performance 

JEPI’s NAV is down 1.29% year-to-date and 4% in a year. Since the fund focuses on a high yield, investors mustn’t expect immediate capital appreciation. Its return since inception is 80.29%. 

JEPI’s yield is much higher than that of VYM and pays monthly dividends. Since it holds only 124 stocks, the concentration on each stock is higher. JP Morgan has nailed the strategy of investing in equity call options to maintain a premium yield. While VYM is an excellent ETF, it is worth considering JEPI if your primary concern is more consistent income and total return.