Each month, I automatically transfer money to my retirement account. This consistent approach has helped me steadily grow my wealth.
Whenever funds hit my account, I try to put at least some of the money to work right away by investing in new opportunities. Investing in a high-quality exchange-traded fund (ETF) allows me to deploy cash quickly.
This September, the two top ETFs I'm eager to buy more of are the Schwab U.S. Dividend Equity ETF (SCHD 0.36%) and the JPMorgan NASDAQ Equity Premium Income ETF (JEPQ -0.99%). These funds not only generate passive income for me but also provide lower-risk exposure to the market's upside.
Image source: Getty Images.
An easy way to invest in the top dividend stocks
The Schwab U.S. Dividend Equity ETF tracks the Dow Jones U.S. Dividend 100 Index, which aims to measure the performance of 100 high-yielding dividend stocks with consistent records of paying dividends. It screens companies based on several dividend quality characteristics, including yield and five-year payment growth record. Its screens also weed out companies with weaker financial profiles. The index aims to track 100 high-quality, high-yielding dividend growth stocks.
The current 100 holdings have an average dividend yield approaching 4%. These companies have also increased their payments at a rate of more than 8% annually over the past five years.
Several companies in the fund have maintained significantly longer periods of dividend growth. Take Chevron, for instance: The ETF's current top holding has increased its dividend for 38 straight years. Others in the top 10 have raised their payments for over half a century.
The ETF's combination of yield and growth provides me with strong total return potential. I should collect a lucrative and growing income stream as the underlying companies increase their dividends, enabling the fund to distribute a steadily rising amount of cash to investors:
SCHD Dividend data by YCharts.
Earnings and dividend growth should also steadily increase the value of the underlying stocks held by the fund, which, in turn, should boost its overall value. Since its inception in 2011, the Schwab U.S. Dividend Equity ETF has delivered an impressive 11.5% average annual total return. That's a great outcome from a lower-risk, income-focused investment.
Income plus lower volatility upside to the Nasdaq-100
The JPMorgan Nasdaq Equity Premium Income ETF follows a dual mandate: provide its investors with a monthly income stream and offer upside exposure to the Nasdaq-100 index with less volatility. The ETF's managers use a two-pronged strategy to achieve their return objectives:
- Equity portfolio: The managers construct an equity portfolio based primarily on companies in the Nasdaq-100 index by applying a data science approach to fundamental research.
- Disciplined options strategy: The ETF also writes out-of-the-money (above the current market price) call options on the Nasdaq-100 index. Options writers receive the premium (the value of the option) up front. The fund distributes the profits from these trades to investors each month.
The fund's options writing strategy can be very lucrative. Over the past 12 months, it has generated an income yield of more than 11%. That provides investors with a very tangible return, helping mute some market volatility.
Additionally, the fund's equity portfolio provides investors with upside to the growth of the Nasdaq-100. When combined with the options income, this portfolio growth enhances the fund's total returns. Since its inception in 2022, the JPMorgan Nasdaq Equity Premium Income ETF has delivered an average annual total return of 14.9%. This fund provides me with income and strong total return potential with less volatility, making it a lower-risk way to grow the value of my retirement account.
Income and growth
The Schwab U.S. Dividend Equity ETF and the JPMorgan Nasdaq Equity Premium Income ETF are ideal ways for me to quickly put cash to work this month. The Schwab ETF provides steady, growing dividend income from established companies, while the JPMorgan fund offers higher monthly income potential with less volatile exposure to the Nasdaq-100. Combining them provides both stability and upside, thereby enhancing my chances of achieving a financially secure retirement.
