Investors looking to build a high-yielding portfolio to generate passive income or reinvest dividends to earn compound returns might consider these three choices: JPMorgan Equity Premium Income ETF (NYSEMKT: JEPI)THE Global X MLP ETF (NYSEMKT:MLPA) And UPS (NYSE:UPS). Here’s why.
There is no shortage of high-yielding exchange-traded funds (ETFs) to invest in, but three elements make this ETF particularly attractive. First, its strategy of allocating up to 80% of its assets in US equities and up to 20% in short financial instruments. S&P500 Out-of-the-money call options are not easy to replicate for retail investors. This last strategy (discussed in more detail here for those who are interested) makes money when the S&P 500 does not rise sharply during the month.
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Second, the options strategy will generate monthly income for investors, even when stocks fall. This will help reduce downward volatility in the overall performance of the ETF.
Third, unlike most equity-focused ETFs, the allocation to stocks isn’t it based on dividend yield. As such, the manager is not obligated to buy stocks clustered in high-yielding sectors like energy or real estate investment trusts that might underperform for extended periods simply because they are chasing the yield.
One of the key investing themes in 2024 is the growing recognition that the clean energy revolution will unfold at a slower pace than many previously thought. Investors are increasingly accepting the idea that energy sources like natural gas and nuclear play a larger role than once thought.
You can choose stocks to play on the theme or buy an ETF like this Global X offering. The “MLP” stands for Master Limited Partnerships. This is not a secret company: these are limited partnerships that trade publicly in the form of shares. They do not pay corporate taxes and generally focus on resource transportation industries.
In this case, the Global X MLP ETF invests in midstream pipelines with long-term contracts that guarantee a multi-decade income stream. The ETF’s top holdings are in natural gas transportation and storage companies like Energy transfer, Enterprise Product PartnersAnd MPLX.
Pipeline and storage MLPs do offer stable long-term income, but investors have previously been concerned about their long-term future, given the trend toward clean energy. Although some doubts remain, natural gas will likely remain a vital part of the energy mix for many decades to come, and the prodigious cash flows and dividends that MLPs will generate in the meantime will make them valuable investments for investors looking for income.
