Monthly Income Without SCHD? How JEPI and VYM Quietly Outperform

Ask any dividend investor to name the first ticker that comes to mind, and odds are you will hear SCHD a lot. The Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD) is indeed a great pick. You get a low-cost basket of quality companies that have compounded steadily while showering investors with quarterly cash.

However, there are other funds out there that have started to outperform it by using recent trends as tailwinds. Two monthly dividend ETFs in particular are worth looking into. The JPMorgan Equity Premium Income ETF (NYSEARCA:JEPI) pays its investors monthly, with a significantly higher yield. On the other hand, the Vanguard High Dividend Yield ETF (NYSEARCA:VYM) pays quarterly but has better performance.

Owning both may now be a better idea than owning SCHD. The numbers stack up well against SCHD, which has lagged on both income and total return during the past three years.

The JPMorgan Equity Premium Income ETF (JEPI)

JEPI is the only monthly ETF on this list. Putting half the money here can get you more than what SCHD can get you. It is actively managed and provides monthly income through a combination of dividends from large-cap U.S. stocks and premiums from selling call options.

JEPI invests around 80% in stocks from the S&P 500, with the remaining in equity-linked notes (ELNs) that provide exposure to written call options on the S&P 500 Index.

This is a strategy that works very well and trounces legacy ETFs when it comes to yield.

Here are its top 10 holdings.

Options are becoming increasingly popular due to the inflow of retail investors into the market. As such, writing options to generate income is a smart way to boost income while having exposure to your favorite stocks.

Over the past three years, JEPI has delivered a total return of 30.78%. In comparison, SCHD has delivered 25.14%.

JEPI yields 8.43% and has an expense ratio is 0.35%, or $35 per $10,000. SCHD’s expense ratio is 0.06%, but the outperformance of JEPI certainly makes up for it.

Vanguard High Dividend Yield ETF (VYM)

VYM pays quarterly, and it goes hand-in-hand with JEPI. It is a passively managed ETF that gives you exposure to U.S. companies that pay above-average dividends. It tracks the performance of the FTSE High Dividend Yield Index, which includes common stocks from firms expected to offer high dividend yields relative to the broader market.

The portfolio here is very extensive, with 583 holdings. Here are its top 10 holdings. 

VYM is more growth-oriented, even though it is not as concentrated as SCHD. The yield is 2.48% vs. SCHD’s yield of 3.75%. However, the 3-year total return is 42.9%, and the 5-year total return of 93.68% is not too far from the SPY’s 5-year total return of 99.35%. The expense ratio is low at 0.06%, or $6 per $10,000.

This growth focus is a plus if you want to hold it alongside a high-yield ETF like JEPI.

SCHD has still outperformed VYM over longer periods, and the drawdowns during recessions can also be worse if you’re invested in VYM. If we look at a 10-year period, SCHD has delivered 132.22% vs. VYM’s 116.27%. I’d expect VYM to outperform over the next decade as it has more exposure to tech and industrials.

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