The best high-yield dividend ETF to invest $2,000 in right now

High yield funds can be risky. In a perfect world, every super-generous dividend yield would be a direct result of strong businesses generating huge cash profits. In the real world, they are often associated with low stock prices and businesses in deep financial trouble. As a result, high yields are associated with disappointing price charts and modest total returns, at best.

What if I told you that one of the largest income-focused exchange-traded funds (ETFs) on the market today combines rich yields with impressive fund-price gains? The JPMorgan Nasdaq Equity Premium Income ETF (NASDAQ: JEPQ ) Checks all the shareholder-friendly boxes — and more.

Premium Income ETF is a very young fund, launched in May 2022. You might have missed it in the vast sea of income-generating ETFs because it is an actively managed fund. Passive index funds come with lower annual fees, so it makes sense to start your fund-screening process with that criteria.

But this JP Morgan The instrument may be subject to its 0.35% management fee. Here’s a quick rundown of the fund’s unique attributes:

Premium Income ETF’s experienced management team relies on data science to select growth-oriented to high-income stocks. Nasdaq 100 Market index.
54% of the portfolio is currently invested in information technology and communications services – two market sectors closely related to the ongoing artificial intelligence (AI) boom.
The top 10 holdings include Complete list of “Magnificent 7” stocks — Proven winners with very large market caps.
Some of these tech giants don’t pay dividends, but fund managers generate monthly income from them in other ways.
The annualized dividend yield currently stands at 9.3% after rising above 12% in the summer.
Despite its short market history, it has a massive $20.7 billion in assets under management. Investors were quick to embrace this brilliant new fund:

Management Chart under JEPQ Total Assets — JEPQ Total Assets Under Management Data by YCharts.

Ways to increase dividends include some risky moves, such as selling short-term call options to generate payouts from volatile stocks. This is great when it works, but it can also result in poor fund performance And Lower yields in a continuing market decline.
The fund was launched a few months ago This bull market started It has not yet been tested in a weak economy, which may offset the downside of alternative-based investment strategies.
A 0.35% management fee may not sound like much, but it’s well above the 0.06% average of today’s 10 largest ETFs and well ahead of low-cost funds such as Vanguard S&P 500 ETF (NYSEMKT: VOO ). Fees can really make a big difference in the long run. The Vanguard fund’s 0.03% annual fee adds up to 0.3% over a decade, while the premium income ETF’s fees would total 3.6% over the same period.

Option-based income generation results in monthly dividend payments instead of the usual quarterly checks. You can call this upside or downside, depending on which payout cadence you prefer.

The premium income ETF’s total returns since the start of 2022 have matched broad market trackers like the Vanguard S&P 500 ETF. At the same time, the price of the fund has increased only 28%, while the market tracker has increased 46%. In other words, the fund remains reasonably priced, even in a rare market rally, and you’re still locking in some great dividend payouts over the long term.

The monthly payout added up to $5.38 per share over the past year, or a 10.7% yield compared to the current share price of about $58. I can’t promise that the fund will increase its payout forever, given its reliance on non-traditional option-based techniques, but it may be worthwhile to consider how a modest payout increase over time might play out.

Let’s imagine that the fund’s annual total return hovers around the 10% mark over the next decade – a fairly reasonable assumption for a fund that S&P 500. I will assume that the dividend payout grows at a similar rate, resulting in a 159% increase over the next decade.

You’ll still have a current yield of 9.3% at that point, but the same payout represents a 24% yield over the original purchase price. If you are looking for a strong dividend payout after 20 years, this fund can give you an effective yield of 62% on your investment in 2024.

This thought experiment relies on a lot of assumptions, but you get the idea. Although the JPMorgan Nasdaq Equity Premium Income ETF may underperform the S&P 500, it can be a high-impact source of cash payouts over the long term. If you have $2,000 available to start a position today, this fund could pay dividends approaching $1,317 in 2044. That’s an effective yield of 66%, though it depends on how accurate my assumptions are.

At that point, the price per share doesn’t really matter. You’ll never sell a part of that high-powered cash machine unless you absolutely have to.

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JP Morgan Chase is an advertising partner of Motley Fool Money. Anders Bylund Vanguard has positions in the S&P 500 ETF. The Motley Fool has positions in and recommends JPMorgan Chase and the Vanguard S&P 500 ETF. The Motley Fool has a Disclosure Policy.

The best high-yield dividend ETF to invest $2,000 in right now Originally published by The Motley Fool