Many high-yield dividend stocks and exchange-traded funds (ETFs) lost their luster over the past two years as rising interest rates boosted the yields of bonds, Treasury bills, and CDs. That trend could continue in 2024 as long as inflation runs hot.
However, I still think it's a good idea to accumulate high-yield stocks and ETFs today in anticipation of lower rates in the future. Here are four of my recent additions: Realty Income (O +0.47%), Vici Properties (VICI 0.23%), JPMorgan Equity Premium Income ETF (JEPI 0.19%), and JPMorgan Nasdaq Equity Premium Income ETF (JEPQ +0.22%).
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Realty Income and Vici Properties
Real estate investment trusts (REITs) are companies that buy properties, rent them out, and share the rental income with their investors. They also need to pay out at least 90% of their taxable income as dividends to maintain a favorable tax rate.
Most REITs slumped in recent years as higher interest rates made it more expensive for these companies to buy properties and issue more debt. But over the long term, the REIT sector will likely recover again as interest rates stabilize and decline. That's why I recently added two of the most well-known REITs -- Realty Income and Vici Properties -- to my portfolio.
NYSE: O
Key Data Points
Realty Income rents its properties to recession-resistant retailers like 7-Eleven, Dollar General, Dollar Tree, and Walmart, and it's kept its occupancy rate above 96% over the past three decades. It pays monthly dividends, and it's raised its payout a whopping 124 times since its IPO in 1994. It currently pays a forward dividend yield of 5.9%, and its stock still looks cheap at 13 times last year's adjusted funds from operations (FFO) per share.
NYSE: VICI
Key Data Points
Vici Properties owns casino and entertainment properties across the U.S. and Canada, and its largest tenants include Caesar's Entertainment, MGM Resorts, Penn Entertainment, and Century Casinos. It locks those tenants into multidecade contracts, and it's maintained an occupancy rate of 100% ever since its IPO in 2018.
Just like Realty Income, Vici pays a forward dividend yield of 5.9% and trades at 13 times its trailing adjusted FFO. However, it pays quarterly dividends instead of monthly ones. I don't expect either of these REIT stocks to rally until interest rates cool off, but I'll happily collect and reinvest their dividends for now as the bulls look the other way.
Two JPMorgan Equity Premium Income ETFs
I often write short-term covered calls on my own stocks to generate some extra income, but that strategy sometimes backfires when a stock suddenly soars past the strike price. Therefore, an easy way to automate that process is to invest in an ETF that automatically writes covered calls every month to generate some extra income.
NYSEMKT: JEPI
Key Data Points
Two of those ETFs are the JPMorgan Equity Premium Income ETF and the JPMorgan Nasdaq Equity Premium Income ETF. Both funds have low expense ratios of 0.35%, and they both use equity-linked notes (ELNs), which are tethered to covered calls.
The JPMorgan Equity Premium Income ETF holds a diverse basket of 130 stocks, and it constantly writes monthly calls on the S&P 500. The JPMorgan Nasdaq Equity Premium Income holds 98 stocks and writes monthly calls on the Nasdaq-100.
NASDAQ: JEPQ
Key Data Points
Both of these ETFs pay monthly dividends. The Premium Income ETF pays a 30-day SEC yield of 7.5%, while the Nasdaq Equity Premium fund pays an even higher yield of 10.9%. The latter pays such a high yield because the Nasdaq-100 is more volatile than the S&P 500, and thus generates higher monthly premiums from its covered calls.
These types of ETFs usually limit their own gains during bull markets with their covered calls, but they can also generate stable monthly payments with higher yields and less volatility than other types of dividend-oriented ETFs.
I actually bought these two ETFs to generate some extra cash to cover my monthly bills, so I'm not too concerned if they lag behind the broader market. They could also be great for retirees who simply want to boost their monthly income.
