Looking for the perfect dividend ETF to boost your portfolio? This episode breaks down the pros and cons of three popular options – SCHD, JEPI, and QDTE – to help you choose the BEST one for your investment goals. Don't miss out on this essential guide!

Today’s episode - Comparative

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📈Choosing the Right Dividend ETF: Comparing SCHD, JEPI, and QDTE

Overview of Dividend ETF Options

Dividend Exchange Traded Funds (ETFs) are a popular option for investors seeking income, long-term growth, or a mix of both. Among the top contenders in this field are the Schwab U.S. Dividend Equity ETF (SCHD), the JPMorgan Equity Premium Income ETF (JEPI), and the Roundhill N100 0DTE Covered Call ETF (QDTE). Each of these ETFs is uniquely structured, offering distinct advantages depending on an investor’s financial goals and risk tolerance. This newsletter delves into the structure, performance, volatility, and ideal investor profiles for each ETF to guide potential investors in making an informed choice.

1. SCHD: Steady Growth with Moderate Risk

The Schwab U.S. Dividend Equity ETF (SCHD) is one of the most well-established funds in the dividend ETF space. Launched in 2011, it tracks the Dow Jones U.S. Dividend 100 Index, a metric focused on high-quality, dividend-paying U.S. companies. Designed with conservative investors in mind, SCHD targets those seeking a stable balance of growth and income without excessive risk.

• Dividend Yield and Stability: With a dividend yield of 3.45%, SCHD pays out quarterly. This makes it a reliable income source for investors who appreciate consistency. While the yield may appear modest compared to other high-dividend funds, SCHD’s trailing 12-month compound annual growth rate (CAGR) of 23.6% (inclusive of reinvested dividends) reflects the steady growth in its price and dividends, a combination that has yielded strong, dependable returns over the years.

• Low Cost and Accessibility: One of SCHD's most appealing features is its low expense ratio of 0.06%, significantly lower than that of many other dividend ETFs. Its recent three-for-one stock split in October 2024 made shares more accessible, allowing smaller investors to buy in at an adjusted price without changing the investment's value.

• Volatility and Liquidity: SCHD has a beta of 0.75, meaning it experiences lower volatility than the broader market, ideal for risk-conscious investors. Its strong trading volume and $64 billion market cap provide high liquidity, allowing easy buying and selling.

• Investor Suitability: SCHD’s balanced risk profile and growth potential make it a strong candidate for conservative investors, particularly those nearing or in retirement who are focused on capital preservation and income. It is equally suited to investors with a long-term horizon, given its historical stability and moderate income generation.

2. JEPI: High Yield with Lower Volatility

For those seeking monthly income from their investment, JPMorgan’s Equity Premium Income ETF (JEPI) offers an enticing option. Launched in 2020, JEPI combines traditional dividend income with an actively managed call-option strategy to enhance returns, making it popular among income-focused investors.

• Dividend Yield and Income Strategy: JEPI offers a high dividend yield at approximately 7.02%, paid monthly, making it particularly attractive for retirees or those seeking regular cash flow. Its yield is bolstered by the fund’s call-option strategy, which involves selling options on its holdings to create an additional revenue stream. This approach enhances income potential, although the strategy introduces some variability to dividend payouts.

• Cost, Size, and Liquidity: With a $36 billion market cap and a trading volume of 973,000 shares daily, JEPI offers ample liquidity for investors. The fund’s expense ratio is slightly higher than SCHD’s, at 0.35%, but it remains relatively low for an actively managed fund.

• Volatility and Performance: JEPI’s beta of 0.52 indicates a low volatility level, making it more resilient to market fluctuations than many other ETFs. This stability appeals to conservative income-focused investors who prioritize cash flow but wish to avoid significant market risks. Its performance has been solid, with a one-year CAGR of 18.7%, supported by price growth and the reinvestment of dividends. However, its three-year CAGR is slightly negative, suggesting it may be best suited for short- to medium-term income generation rather than long-term growth.

• Investor Suitability: JEPI is ideal for income-seeking investors, especially retirees, who prefer a steady income source with minimal market exposure. Its stable growth and monthly income generation are excellent for individuals needing a dependable cash flow but are comfortable with minor fluctuations in monthly dividend amounts due to the call-option strategy.

3. QDTE: High-Yield Potential with High Risk

Roundhill’s N100 0DTE Covered Call ETF (QDTE) is a new addition to the dividend ETF space, launched in March 2024. This fund targets aggressive investors who can tolerate high risk in exchange for higher rewards. Unlike SCHD and JEPI, QDTE uses a zero-day-to-expiration (0DTE) options strategy, which allows the fund to generate daily income, culminating in a unique weekly dividend payout.

• Dividend Yield and High-Risk Income Generation: With an impressive yield of 21.9%, QDTE provides a significantly higher income potential than SCHD and JEPI. However, its zero-day options strategy introduces a greater degree of unpredictability, as these short-term options can result in price volatility, and dividends may fluctuate. Its synthetic options strategy, called the “poor man’s covered call,” aims to mimic the benefits of direct stock ownership at a lower cost but carries unique risks.

• Cost and Liquidity Concerns: QDTE has the highest expense ratio of the group, at 0.95%, due to its specialized options strategy. Its lower market cap of $475 million and higher beta of 1.2 indicate that it is more susceptible to market swings, adding to its speculative nature. Investors should note that its lower trading volume may limit liquidity, posing potential challenges in buying and selling.

• Performance and Downside Risks: Since its launch, QDTE’s price has experienced a -12.4% decline year-to-date, though its total return remains positive (19.8%) due to reinvested dividends. These trends highlight both the high-return potential and the inherent price instability. QDTE’s high-yield promise comes with a risk of significant price depreciation, making it a less attractive choice for conservative investors or those prioritizing capital preservation.

• Investor Suitability: QDTE is most suitable for high-risk investors focused on maximizing yield rather than price stability. This fund may appeal to younger investors with a high risk tolerance and the capacity to endure potential losses for the chance of outsized gains. Its weekly dividends make it unique among ETFs, but the volatility and associated costs require a willingness to actively monitor the investment.

Finding the Right ETF Fit

Selecting the right dividend ETF depends on balancing income goals, risk tolerance, and growth expectations. SCHD, JEPI, and QDTE each offer unique benefits and drawbacks that align with distinct investor profiles:

• SCHD provides stability, steady growth, and quality dividends, making it ideal for conservative investors with a long-term outlook.

• JEPI appeals to income-focused investors who seek regular monthly payouts without high volatility, positioning it well for retirees.

• QDTE is designed for aggressive investors willing to accept high risks for the prospect of weekly high dividends and substantial total returns.

In today’s diverse financial landscape, dividend ETFs provide a valuable tool for income generation and wealth accumulation. Whether prioritizing growth, consistent income, or high yields, investors can find suitable options in SCHD, JEPI, and QDTE—each bringing a tailored approach to dividend investing. As with all investments, understanding each fund’s structure, risk, and performance is essential for making informed decisions and achieving financial goals.

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