Income Investors Get High Monthly Dividends From JEPI and Similar Covered Calls ETFs
Inflation, high transaction costs, and time make treasuries, money markets, cash and bonds poor performers.
By Donald E. L. Johnson
Cautious Speculator
Key Points:
With treasuries, bonds, money market funds and several stocks yielding about 4% annually, income investors are seeking alternative income investments.
Inflation, time, inflation and their inability to predict where interest rates and stock prices will go, traditional income trades look riskier than usual and may lose money and under perform for a long time.
JEPI and other covered calls ETFs tend to move with the markets while yielding more than twice as high annual returns on investments than money markets, bonds, treasuries and so called alternative investments.
Trading weekly and monthly covered calls on high volatility, high probability of expiring out of the money and high quality dividend and no dividend stocks like Amazon can yield some of the best returns on investment at a relatively low risk.
James Mackintosh has a must read column on How to Invest When Everything Yields the Same over on WSJ.com (paid subscription required. Try searching the web or Anthropic.com’s Claude.ai on this topic.)
Treasuries and bonds are terrible investments compared with exchange traded funds that pay monthly dividends with annual yields topping 10%.
Mackintosh suggests investing in companies based in Europe and Japan, but that is not a good idea, either, in my opinion.
I posted this comment on Mackintosh’s WSJ.com article:
Investors in 10- and 30-year municipal and corporate bonds pay huge commissions when they sell. Transaction costs are between $800 and $1,000 per $100,000 in investments because market makers earn their big money cashing in on the differences between bid and ask prices.
Transaction costs are a bit lower for wealthy and institutional bond traders who are investing millions of dollars in a single trade.
Retail investors in covered calls and similar high-yielding ETF funds can quickly buy and sell $100,000 worth of the funds for about $10 in commissions on the buy and sell sides.
Inflation also cheapens the value of a dollar over the 10- 15- 20- and 30-year duration of a municipal or taxable bond.
Beware of portfolio managers who are selling alternative and foreign ETFs. Their commissions on those equities are extremely high. A lot of them underperform ETFs and mutual funds that focus on the stocks of U.S.-based countries.
For people who are experienced traders and speculators, selling high volatility covered calls and cash secured puts with a high probability that the stock options will expire worthless in one to three weeks is a relatively low risk way of generating higher returns on investment and returns on invested capital.
All speculating (investing) is risky. Not learning to trade and manage your money yourself is very risky.
WSJ.com reviews comments that mention specific trades and includes links. The comments section also has a tight limit on the length of a comment.
In addition to trading covered calls and cash secured puts, I have a dividend and interest income portfolio that is dominated by my investments in JP Morgan Equity Income Fund (JEPI) and a few similar ETFs. They all yield over 10% annually in tax sheltered accounts. The taxable equivalent yield depends on an investor’s effective federal and state income tax brackets. Investors can reduce their income tax exposure by taking unwashed tax losses on stocks and ETFs that are deeply in the red and look like they are dead money.
I also have cash in a money market fund that yields a little over 4%. I’m about to sell that fund and use the money to buy stocks and sell more cash secured puts on high quality stocks that are in long-term bullish trends and have relatively high dividends and implied volatility. Ido some of these 3- to 30-day options trades on stocks like Amazon Inc. (AMZN) that don’t pay dividends, yet.
Great insight, as usual.
Good article, thank you!