For many Americans, paying the mortgage bill is the biggest expense they deal with each month. While home prices and other factors (such as property taxes) vary widely from state to state, the National Association of Realtors reports that the average monthly mortgage payment for a 30-year fixed-rate mortgage in the United States is now $2,317. However, what if you could pay for these large, recurring monthly expenses with a negative recurring monthly income from your investment portfolio?
One way to do this is through a high-yield exchange-traded fund (ETF) with monthly returns like a common fund. J.P. Morgan Premium Equity Income Traded Fund (NYSEARCA: Jewish). This ETF pays dividends every month and The dividend yield is currently 10.2%.Which makes it a well-suited investment tool to achieve this goal. Let’s walk through the idea of paying that big recurring bill with recurring earnings income and the steps you’ll take to get there.
Before we dive into the details, let’s first touch on the JEPI strategy. This is a $28.5 billion JPMorgan ETF that launched in 2020 and quickly gained popularity on its way to becoming the largest actively managed ETF in the market today.
According to JPMorgan, JEPI “generates income through a combination of selling options and investing in large-cap U.S. equities, and seeks to provide monthly income from associated option premiums and dividends.” In addition, JEPI seeks to “hand over a significant portion of the proceeds” of the project Standard & Poor’s 500 with less fluctuations.
While most dividend stocks pay out a quarterly dividend, JEPI pays them monthly, so their distribution schedule aligns well with our goals of making a monthly mortgage payment.
It should be noted that JEPI’s dividend payout can vary from month to month, but it currently yields an attractive ratio of 10.2%. Using the payments for the last 12 months, which range from $0.29 to 0.61 cents, we can keep things simple by saying that the average dividend payout is $0.46 per month.
To access the $2,307 in monthly JEPI dividend payments to pay off the average mortgage, the investor would need to purchase 5,016 shares of the ETF. At the current price of $54.49, this would result in an investment of $273,321.84.
While this is a lot of money for the average individual investor to accumulate, it goes to show that an investor could theoretically pay their mortgage every month using passive income from a high-yield exchange-traded fund (ETF) like JEPI.
The advantage of using a JEPI ETF dividend payment for monthly mortgage payments against dividend stocks is that even though it is a single security, it reduces the risk per share because the income-oriented ETF owns 120 shares.
JEPI is more diversified as its 10 largest holdings make up just 17.6% of the fund, so it doesn’t leave investors overexposed to just one or two stocks. In fact, no position has a weight of more than 2%. Below, you can take a look JEPI’s top 10 holdings Using the TipRanks Holdings tool.
The JEPI portfolio contains a wide range of large-cap US stocks, from technology stocks like Amazon, Microsoft and Adobe to dividend-paying mainstays from consumer staples like Coca-Cola, Pepsi and Hershey.
While the idea of ”set and forget” paying your mortgage with a dividend ETF such as JEPI is certainly attractive, there are a few additional elements that investors should consider before considering such an idea.
While it’s certainly possible to make a large position of roughly $273,000 in a single security and use the dividend payments from that ETF to pay your mortgage, you generally want to avoid putting all of your eggs in one basket. Yes, JEPI is a diversified company, but investing that much in one security can leave you with too much exposure to just one investment vehicle, which can backfire if something goes wrong.
In the long run, it is probably best to build a diversified portfolio of at least 15-20 stocks to build long-term wealth.
There is also a consideration specific to JEPI that investors can miss out on a long term capital appreciation opportunity by investing such a large amount in this type of ETF. By selling covered calls, JEPI runs the risk of leaving upside on the table as the market goes higher. Selling covered calls limits the investor’s upside at a point because if the price of the underlying stock rises beyond the option’s strike price, JEPI investors forgo the additional gain.
It should also be noted that if an investor has accumulated this amount of capital to put into an investment such as JEPI, they may also be able to simply pay off the mortgage in one payment and eliminate the worry of making monthly payments altogether.
Conversely, a mortgage can also give homeowners a tax break, and if they have a low interest rate on their mortgage, they may not want to pay it off. Even if the investor could theoretically pay off their mortgage once using the principal amount they allocate to JEPI in this exercise, I still like the idea of preserving liquidity and preserving choice by holding a large position in JEPI and paying for the mortgage. monthly basis.
Is JEPI a Buy, According to Analysts?
Turning to Wall Street, JEPI has a Moderate Buy consensus rating based on 103 Buys, 17 Holds, and Zero Sell ratings assigned in the past three months. the JEPI average share price target The amount of $62.32 indicates upside potential of about 14%.
Start with one step
This strategy may not be for everyone, but it shows what you can achieve by saving, investing, and building positions in dividend-paying ETFs. While raising over $273,000 to achieve this goal may seem daunting at first, the biggest journeys start with a single step.
Allocating over $273,000 to JEPI sounds like a lot, but what if you could allocate $5,000 to start receiving approximately $50 in dividend payments each month or allocate $10,000 and start receiving $100 in monthly payments? By starting a position, reinvesting the monthly profits, and adding more to your position each month, you can eventually achieve this goal.
The added bonus is that even if you don’t have enough to have the $2,307 needed to pay the monthly mortgage in full, any passive income that comes from the investments to help you pay for it (or pay for other expenses) is an added bonus and gives you a nice helping hand.