Investing in Nvidia: The Surprising Route to High Yields

Nvidia (NASDAQ: NVDA) may not seem like a prime choice for income investors. Its forward dividend yield currently stands at a mere 0.029%. Yet, there is a clever way to invest in Nvidia while still enjoying exceptional income—through a specialized exchange-traded fund (ETF) that boasts a staggering yield of 8%.

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Discovering the Recommended ETF

The ETF in question is the JPMorgan Equity Premium Income ETF (NYSEMKT: JEPI), launched by JPMorgan Chase in May 2020. This fund is designed to offer monthly payouts, exposure to the stock market, and reduced volatility.

A significant portion of this ETF is invested in Nvidia, which currently ranks as its second-largest holding, closely followed by Trane Technologies.

Overall, the JPMorgan Equity Premium Income ETF includes 133 different stocks. Other notable holdings consist of Progressive, Southern Company, Meta Platforms, Mastercard, and Amazon. Notably, nearly 15% of the fund is allocated to information technology stocks, while it also encompasses stocks from over 11 additional sectors.

Unlike many ETFs that aim to mirror an index, this fund is constructed using what JPMorgan describes as a “time-tested, bottom-up fundamental research process.” The selection of stocks is based on proprietary risk-adjusted rankings.

This meticulous stock selection approach has yielded positive results. Since its launch, the JPMorgan Equity Premium Income ETF has realized an average annual total return of approximately 13.4%.

Understanding the 8% Yield

You may be curious about how this ETF can afford such a high yield, particularly since many of its leading stocks do not offer generous dividends. For instance, Amazon provides no dividends, while Southern Company’s yield is just 3.06%, notably lower than the ETF’s 30-day SEC yield of 8%.

The answer lies in the use of derivatives. To enhance income, the ETF engages in selling out-of-the-money call options on the S&P 500. These options allow the purchaser the right (but not the obligation) to buy the S&P 500 at a future price higher than its current value. This strategy enables the JPMorgan Equity Premium Income ETF to provide a yield that significantly exceeds returns typically seen from S&P 500 ETFs, U.S. Treasury bonds, or most global real estate investment trusts (REITs).

Morningstar has rated the JPMorgan Equity Premium Income ETF with five stars in the derivative income category—its highest possible rating.

While the ETF’s expense ratio is 0.35%, which is relatively moderate, the 30-day SEC yield of 8% reflects these costs.

These costs include compensating the ETF’s two skilled portfolio managers. Hamilton Reiner brings 37 years of industry experience, 15 of which were spent at JPMorgan Chase. Raffaele Zingone has dedicated all of his 33 years in finance to JPMorgan Chase. Both managers have overseen the JPMorgan Equity Premium Income ETF since its inception.

Important Considerations

However, with any investment, it is essential to consider potential drawbacks. The fund’s future performance may not replicate its past successes. The stock market has seen exceptional growth over the past four years, a timeframe that may not reflect future trends.

Moreover, the attractive yield currently available from the JPMorgan Equity Premium Income ETF may not last. There have been times since its launch when the yield was significantly lower.

If you are looking to invest in Nvidia via this ETF, keep in mind that there’s no certainty this fund will maintain its investment in the company. The ETF’s turnover ratio—indicating the percentage of stocks replaced—was 174% for the 12 months ending June 30, 2024.

Despite these considerations, the JPMorgan Equity Premium Income ETF may suit income-focused investors well. For those seeking a way to invest in Nvidia while enjoying a substantial yield, this ETF remains a compelling option.

Is Now the Right Time to Invest in JPMorgan Equity Premium Income ETF?

Before deciding to invest $1,000 in the JPMorgan Equity Premium Income ETF, it’s wise to evaluate additional options:

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, also serves on The Motley Fool’s board. Keith Speights holds positions in Amazon, Mastercard, and Meta Platforms. The Motley Fool recommends holdings in Amazon, JPMorgan Chase, Mastercard, Meta Platforms, Nvidia, and Progressive. The Motley Fool also recommends options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.