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For many Americans, paying the mortgage bill is by far the largest expense they deal with each month. While home prices and other factors (like 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 mortgage in the United States is now a hefty $2,317. However, what if you could pay for this large, recurring monthly expense with passive, recurring monthly income from your investment portfolio?
One way to do this would be through a high-yield, monthly-dividend ETF like the popular
JPMorgan Equity Premium Income ETF (
NYSEARCA:JEPI)
. This ETF pays a dividend each month and
its dividend yield is currently 10.2%, making it an investment instrument that is well-suited to pursuing this goal. Let’s walk through the idea of paying this large, recurring bill with recurring dividend income and the steps it would take to get there.
Monthly Dividends
Before diving into the specifics, let's first touch on what JEPI's strategy is. This is a $28.5 billion ETF from JPMorgan (
NYSE:JPM
) that launched in 2020 and has 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. stocks, seeking to deliver a monthly income stream from associated option premiums and stock dividends.” Additionally, JEPI seeks to “deliver a significant portion of the returns” of the S&P 500 (
SPX
) with less volatility.
While most dividend stocks pay out a dividend on a quarterly basis, JEPI pays them monthly, so its payout schedule aligns nicely with our objectives of making a monthly mortgage payment.
Double-Digit Yield
It should be noted that JEPI’s dividend payout can vary from month to month, but it currently yields an attractive 10.2%. Using the last 12 months’ payments, which range from $0.29 to $0.61 cents, we can simplify things by saying that the average dividend payment works out to $0.46 per month.
To reach $2,307 in monthly dividend payments from JEPI to pay off the average mortgage, an investor would need to buy 5,016 shares of the ETF. At a current price of $54.49, this would come out to an investment of $273,321.84.
While this is a large amount for the average individual investor to accumulate, it shows that an investor could theoretically pay their mortgage each month using passive income from a high-yield dividend ETF like JEPI.
Diversification
An advantage of using a dividend ETF JEPI to pay a monthly mortgage payment versus a dividend stock is that while it is a single security, it reduces single-stock risk because this income-oriented ETF owns 120 stocks.
JEPI is further diversified in that its top 10 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 weighting of more than 2%. Below, you can take a look at
JEPI’s top 10 holdings using TipRanks’ holdings tool.
JEPI’s portfolio contains a wide variety of large-cap, blue-chip U.S. stocks, ranging from tech stocks like Amazon (
NASDAQ:AMZN
), Microsoft (
NASDAQ:MSFT
), and Adobe (
NASDAQ:ADBE
) to dividend mainstays from the consumer staples sector like Coca-Cola (
NYSE:KO
), Pepsi (
NYSE:PEP
), and Hershey (
NYSE:HSY
).
Additional Considerations
While the idea of "setting and forgetting" your mortgage payment with a dividend ETF like JEPI is certainly appealing, there are some additional items investors should consider before considering an idea like this.
Though it’s certainly possible to build up a large position of ~$273,000 in one security and use the dividend payments from this ETF to pay your mortgage, you generally want to avoid putting all of your eggs in one basket. Yes, JEPI is diversified, but investing this much in one security could still leave you with a lot of exposure to just one investment vehicle, which could backfire if something goes wrong.
Over the long term, it’s probably preferable to build a diversified portfolio of at least 15-20 stocks to build long-term wealth.
There is also the JEPI-specific consideration that investors could miss out on long-term capital appreciation 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 rises. Selling covered calls caps an investor's upside at a certain point because if the price of the underlying stock rises beyond the strike price of the option, JEPI investors forgo the additional gains.
It should also be noted that if an investor has accrued this much capital to put into an investment like JEPI, they may also be able to simply pay the mortgage off all in one fell swoop and eliminate the concern of making monthly payments altogether.
Conversely, a mortgage can also give homeowners a tax break, and if they have a low interest rate locked in for their mortgage, they may not want to pay it off. Even if an investor could theoretically pay off their mortgage all at once with the principal that they are allocating to JEPI in this exercise, I still like the idea of remaining liquid and maintaining optionality by keeping the large position in JEPI and paying for the mortgage on a monthly basis.
Is JEPI Stock a Buy, According to Analysts?
Turning to Wall Street, JEPI earns a Moderate Buy consensus rating based on 103 Buys, 17 Holds, and zero Sell ratings assigned in the past three months. The
average JEPI stock price target of $142.66 implies 14.4% upside potential.
Starting with a Single Step
This strategy might not be right for everyone, but it shows what you can achieve by saving, investing, and building up positions in dividend ETFs. While accruing over $273,000 to achieve this goal might sound daunting at first, the largest journeys begin 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 ~$50 in dividend payments each month or put in $10,000 and start receiving $100 in monthly payments? By starting a position, reinvesting the monthly dividends, and adding a bit 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 receive the $2,307 needed to pay the full monthly mortgage, any passive income coming in from investments to help you pay for it (or pay for other expenses) is an added bonus and gives you a nice helping hand.
Disclosure