JEPI vs SCHD: Comparing Popular Income ETFs

 

This article compares JEPI vs SCHD — J.P. Morgan’s Equity Premium Income ETF vs. Schwab’s U.S. Dividend Equity ETF. 

Do-it-yourself investors looking for dividend and retirement income may consider both funds to suit their investment objectives. 

But these funds are very different despite some holdings overlap. 

JEPI is an actively managed covered call ETF designed to boost portfolio yield and reduce volatility. The fund aims to seek current dividend income while maintaining the prospects for price appreciation.

It holds undervalued stocks in its benchmark index and sells covered calls (a basic and low-risk option strategy) against the benchmark indexes to generate income for investors via equity-linked notes (ELNs). 

SCHD is a passively managed index ETF popular with dividend investors and retirees looking to earn yields above total market ETFs such as VTI.

SCHD is not a covered call ETF. 

Passive index ETF managers do not pick stocks. Managers allocate funds to all stocks in the benchmark index to track performance. Managers receive a small fee to achieve this outcome.

SCHD is a narrower-scoped ETF that tracks the Dow Jones U.S. Dividend 100™ Index. JEPI has a broader pool of investment options aligning with the Standard & Poor’s 500 Total Return Index (S&P 500 Index). However, manager discretion greatly influences the stock selection and covered call strategy. 

Bottom Line Upfront (BLUF)

Before I get into the details of JEPI vs SCHD, it’s essential to keep the following in mind:

• The funds are dissimilar and serve different investment objectives.
• JEPI is a covered call ETF. SCHD is a passive index ETF. 
• JEPI’s dividend is consistently more than double that of SCHD.
• JEPI pays a monthly dividend. SCHD pays a quarterly dividend. 
• JEPI is a for higher yields and reduced volatility (gains and losses). SCHD is for moderate yields and market volatility.
• SCHD is a well-established bedrock dividend ETF. JEPI is newer and untested in market volatility. This fact makes comparison challenging.

Please note that both ETFs update their prospectuses regularly. The information referenced in this article will change over time.

The best resource for both funds is the respective company’s websites.

Here are links to the most updated information at J.P. Morgan and Schwab. Consider the information on those pages to be the authoritative data source.

• J.P. Morgan’s Equity Premium Income ETF (JEPI)
• Schwab’s U.S. Dividend Equity ETF (SCHD)

SCHD vs JEPI Comparison

Side-by-Side

Here’s a side-by-side comparison of both ETFs. Scroll right on mobile.

A few noticeable differences between SCHD vs JEPI:

• JEPI is more diversified. 
• SCHD is older and larger. 
• JEPI is a monthly dividend payer. SCHD is quarterly. 
• SCHD has a higher concentration risk, with the top 10 holdings making up 40% of the ETF. 
• JEPI has outperformed SCHD over one and three-year periods but is untested for longer durations. 
• SCHD has a much lower expense ratio. However, JEPI’s expense ratio is reasonable for an actively managed fund.

Benchmark Indexes

JEPI uses the Standard & Poor’s 500 Total Return Index (S&P 500 Index) as its benchmark index, one of the most followed indexes in the world. 

Visit this page for the latest information about the weighted index.

There are 500 stocks in the index, representing both the Nasdaq and New York Stock Exchange (NYSE). The companies are the largest and most established in the U.S.

However, JEPI is not an index fund, so it does not hold all stocks in the fund. The fund managers select undervalued stocks from the benchmark index and write covered calls against the benchmark index to generate income for investors via equity-linked notes (ELNs). 

SCHD tracks the Dow Jones U.S. Dividend 100™ Index. 

Visit this page for the latest information about the index.

Stocks must pass the following screens to be eligible for inclusion in the index: 

• Minimum 10 consecutive years of dividend payments
• Minimum float-adjusted market capitalization (FMC) of US$ 500 million
• Minimum three-month ADVT of US$ 2 million

Stocks passing all three screens are ranked in descending order by Indicated Annual Dividend (IAD) yield, defined as a stock’s IAD (not including any special dividends) divided by its price. The top half of securities based on this ranking are eligible for stock selection. Excludes REITs.

Performance Chart

Here is a daily updated SCHD vs JEPI chart compared against each other over ten years. Scroll right on mobile.

Note: This chart does not account for dividend payments. When a dividend is paid to shareholders, the security price is reduced by the dividend amount. Since JEPI pays a higher yield and more frequent dividend, the price performance is lower than SCHD despite outperforming in total return. Click here to build a chart to show total returns. 

Past performance is not indicative of future results. 

Please note total returns, including dividends and price appreciation, in your decision to buy or sell either fund.

Both funds are suitable as an income-producing asset in your portfolio. 

See the table above for up-to-date one and three-year average annual total return performance records.

Dividend Payout Schedules

The JEPI monthly dividend typically pays on the first day of every month starting February 1st. December has two dividend payments — one on the first of the month and one toward the end of the month. There is usually no January dividend, presumably to help avoid tax reporting complications. 

Investors receive SCHD quarterly dividend payments in mid-to-late March, June, September, and December.

Top Ten Holdings

Here are the top ten holdings for each fund.  

 
Learn more: SCHD Top 50 Holdings Table and Chart, JEPI Top 50 Holdings Table and Chart

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Mutual Fund Alternatives

Here are the closest mutual fund alternatives for both ETFs.

• JEPI = JEPIX 
• SCHD ~ SWDSX (not identical, actively managed)

Charles Schwab does not have an identical index mutual fund to compare against SCHD. The closest mutual fund is the Schwab Dividend Equity Fund™ (SWDSX).

The SWDSX is an actively managed mutual fund with an expense ratio close to 1%. It has underperformed SCHD, yields less, and costs more. 

JEPI has a mutual fund equivalent with the symbol JEPIX. Pay close attention to your broker’s mutual fund fee structure. Use the ETF to avoid broker-imposed fees for mutual funds. 

Mutual funds trade differently than ETFs, which trade like stocks. 

ETFs are easier to own, and the price changes throughout the day. Mutual funds only trade at the market close. 

Active investors typically use ETFs for trading purposes or to buy and hold indexes when they can’t access index mutual funds.

• Learn more about JEPIX here
• Learn more about SWDSX here

What are Equity-Linked Notes?

Since JEPI does not own its benchmark index directly, managers use equity-linked notes (ELNs) to generate similar returns to a covered call strategy against the index. The income derived from the covered call strategy is paid to investors as a monthly dividend.

The JEPI ETF is comprised of approximately 80% stocks and 20% ELNs. 

The combined strategy of holding undervalued stocks and selling call options enables high monthly dividend income while maintaining the prospects for capital appreciation. 

JEPI has fewer stock holdings than its benchmark indexes. Managers deploy proprietary research to select attractively valued stocks.

Best Broker to Buy JEPI or SCHD

Charles Schwab is a good choice for long-term retirement investors. You’re in good hands if your IRA or employer-sponsored plan is with Schwab, Fidelity, Vanguard, and many others.

Here are my favorite online brokers for investing in ETFs and automatically reinvesting dividends. 

The Verdict

Choose SCHD for market-like returns, lower expenses, and a solid yield above broader market index funds. 

Choose JEPI for a high-yielding investment, monthly dividends, and reduced market volatility (lower gains when the market rises, shallower losses when the market falls). 

Deciding between JEPI vs SCHD comes down to the strategy — covered call versus passively managed dividends. 

The ETFs are dissimilar, so investors can comfortably own both without strategic overlap. 

SCHD will give investors near-market returns as it owns many blue-chip and industrial stocks that pay a higher-than-average dividend.

However, it does not own non-dividend paying growth and tech stocks. Concentration risk is higher.

SCHD’s top ten holdings make up a significantly higher proportion of the ETF than JEPI. The implosion of one top holding in the SCHD ETFs would have a more significant impact on the total returns of the entire fund. 

JEPI is less concentrated and adds diversified income from selling covered calls.

Consider SCHD for conservative income investing if you have a five-year investment horizon or more. 

The performance comparison is nothing to hang your hat on. JEPI has outperformed (as of October 2023) since its inception but still needs to prove itself over longer durations and severe market volatility. The fund should retain more value when markets fall.

JEPI’s consistently high dividend yield far outmatches SCHD’s yield. Both funds are best in retirement accounts to reduce taxation on dividend payments.

But JEPI’s 9%+ dividend is critically impacted by taxation in taxable accounts. Buy JEPI in an IRA or Roth to maximize the income benefit. SCHD is better for taxable accounts than JEPI. 

Lastly, JEPI is a relatively young fund. Management has not been tested in a volatile market. Significant risk could emerge in the option strategy upon sudden market moves. We will see how it fairs once confronted with a market event.

However, the fund is suitable for investors who prioritize portfolio income for retirement. Investors should conduct personalized due diligence against investment objectives before owning either fund.

Purchase either ETF at any commission-free online broker. 

Please reply with your questions regarding JEPI vs SCHD in the comments section below. Include any requests you have about adding more detail to this article. 

Read more:

• VYM vs. SCHD
• JEPQ vs. JEPI
• SCHD vs. VOO

Disclosure: The author is long VTI and SCHD. I’ve chosen the SCHD fund for myself, but please evaluate both funds in the context of your personal investment objectives before choosing which is right for you.