Top Investment Picks for High-Yield Returns
Investors aiming to create a high-yield portfolio to earn passive income or to reinvest dividends may find these three options appealing: the JPMorgan Equity Premium Income ETF (NYSEMKT: JEPI), the Global X MLP ETF (NYSEMKT: MLPA), and UPS (NYSE: UPS). Here’s an overview of their potential benefits.
JPMorgan Equity Premium ETF (Dividend Yield: 7.1%)
This ETF stands out among high-yield options for three key reasons. Firstly, it invests up to 80% of its assets in U.S. equities while dedicating up to 20% to financial instruments, specifically S&P 500 out-of-the-money call options. This strategy offers a unique income-generating opportunity that retail investors may find challenging to replicate, as it profits when the S&P 500 doesn’t increase dramatically in a month.
Secondly, monthly income generation from the options strategy helps cushion the ETF against potential equity downturns. This design can reduce overall volatility in the ETF’s performance.
Lastly, the equity allocation is not based solely on chasing dividend yield, allowing the manager more flexibility in selecting stocks beyond high-yield sectors, such as energy or real estate investment trusts, which may underperform for extended periods.
Global X MLP ETF (Dividend Yield: 7.4%)
As we move into 2024, a significant investment trend is emerging: the recognition that the clean energy transition may not occur as rapidly as many anticipated. This shift has led to a greater appreciation for energy sources like natural gas and nuclear power.
Investors can either choose specific stocks or opt for an ETF like the Global X MLP ETF, which stands for Master Limited Partnerships. MLPs are publicly traded partnerships that benefit from tax exemptions and typically focus on resource transportation sectors.
This ETF particularly invests in midstream pipeline companies that secure long-term contracts, ensuring steady income over decades. Its major holdings include notable companies such as Energy Transfer, Enterprise Products Partners, and MPLX.
While some investors have expressed concerns regarding the viability of natural gas amid the push for clean energy, it is expected to remain a crucial component of the energy landscape for many years. This stability, along with the substantial cash flows and dividends from MLPs, makes them worthwhile for income-focused investors.
UPS (Dividend Yield: 4.9%)
Despite facing challenging market conditions, UPS is showing resilience. Recent earnings reports indicated a slight decline in revenue per package (down 1.7% in Q3), but cost reductions outperformed this decline (down 4.1%). Notably, overall delivery volume increased by 5.4%.
These factors contributed to a revenue growth of 5.6% and an improvement in operating margins from 7.7% in Q3 2023 to 8.9% in Q3 2024, resulting in a nearly 23% rise in operating profit.
Although the revenue per package is lower, the increase in volume indicates the industry is adjusting to past overcapacity, paving the way for better pricing in the future. UPS is also focusing on reducing capacity and investing in productivity measures, such as automation and smarter operations.
Image source: Getty Images.
However, achieving its full-year financial targets may be difficult. UPS reported free cash flow (FCF) of $5.1 billion, which is insufficient to cover its dividend payment of $5.4 billion. This year could represent a low point in earnings, but improvements in profits and cash flow are anticipated in the coming years as metrics show positive trends.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool recommends Enterprise Products Partners and United Parcel Service. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
