JAAA, SCHD & JEPI: Earn More Income In 2026?

Up to 8.29% annual cash payouts and some equity upside? Let’s compare JAAA, SCHD and JEPI today and talk about the differences between CLOs (collateralized loan obligations), dividend shares and covered call strategies.

Transcript

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Up to 8.29% annual cash payouts and some equity upside. Let's compare JAA, SHD, and Jeppy today. Hello, Diamond Nestec Members, Super Savers and Course fans. I hope you're healthy and well. So, over the past few weeks, we've talked quite a bit about how you can lock in a safe, stable, and predictable income that lasts a lifetime, that is guaranteed in the base part of your portfolio, either via fixed index annuities, fias with income riders, single premium immediate annuities, SPIAS, and lattered longer-term multi-year guaranteed annuities, MIGAs, treasuries, or similarly safe non-callable bonds. And personally, we think that locking in a safe and guaranteed lifelong income is something nearly every investor who's getting close to retirement or who is already in retirement should consider, especially given that interest rates and therefore annuity rates are currently still at some of the most attractive levels that they've been in a long time. But what if you don't want to commit all your money for that long and or have already secured your base and now want to explore opportunities for higher income and don't mind taking on a bit of additional risk and complexity for that extra upside? Well, with that in mind, here are the three topics I'll be covering today. 1. Why might you want to consider JAA, SCHD, andor JEPI for higher income? And what are the trade-offs that you may need to accept? JAA is Janice Henderson's AAA CLO ETF. SCHD is Schwab's US Dividend Equity ETF, and JEPI is JP Morgan's Equity Premium Income ETF. Now, some of our Diamond Nesteg members and regulars are already familiar with or already own some or all three of these ETFs in their portfolio, since we've already covered them in greater detail in our member zone and on this channel over the past few years. But we think it can never hurt to have a friendly mid-year refresher to see where rates stand at the time of this taping on July 2nd, 2026, especially since higher income is top of mind for many folks in our community. 2. How do JAA, SCHD, and JEPI achieve this higher income and what is their track record? And three, what's our perspective? Let's dive in now, folks. Why might you want to consider JAA, SCHD, and or JEPI for higher income? And what are the trade-offs that you may need to accept? As our trademark saying goes, everyone's financial journey is different. But most people typically like the investments that we're going to discuss today because these investments have three main advantages. One, the potential for a higher income stream, meaning the higher cash distributions, as the industry calls it. Two, the flexibility that comes from not being locked into an investment for the long run. And three, for the equity-based instruments, you may even keep a part of the upside in the stock market on top of the higher payouts. So far, so good. But as always, there's no free lunch in finance. So let's go through the three potential disadvantages or risks of JAA, SCHD, and JEPI that you should keep in mind when you decide how much of your portfolio you want to allocate to them. First, while all three of the ETFs are flexible and liquid, none of them can lock in a rate for the long run. Their cash payouts, their distribution yields, may be attractive right now, but they will fluctuate over time. Second, JAA, SCHD, and JEPI may carry higher risks and be less predictable than annuities from the best rated companies and treasuries or other safe bonds that are held to maturity. And while some of these ETFs may protect your principal reasonably well and or even have room for an upside, you may also lose some or even all of your initial investment with others. Third, all three of the ETFs that we'll be discussing today can be complex and are not always easy to understand. It may take a bit of time, effort, and willingness to learn and fully grasp the underlying risk profile of what you're buying. And even if you delegate the day-to-day management to professionals by buying an ETF, which may be a sensible decision here for most retail investors, by the way, in doing so, you will always lose a bit of the three Cs that you would have benefited from if you had invested directly in the underlying instrument. Here again are the three C's that we often discuss here on this channel. By buying an ETF, you will lose some clarity and control and add some cost versus a direct investment in the underlying product. Now, let's move on to the core of today's discussion. How do JAA, SCHD, and JEPI achieve this higher income and what is their track record? So for those of you seeking higher income potential, this table here should give you a good overview of JAA, SCHD, and JEPI. This column here shows the type of investment we're discussing, followed by the ticker of the ETF that we picked as an example for a deep dive and a short explanation of its risk profile. In the next column, we explain the liquidity, and after that, we have a short note about taxation when held in a taxable brokerage account. As usual, please keep in mind that we're not tax advisors. So if you have more detailed taxation questions, do consult with your trusted tax advisor about your personal situation. In the next column, we show the distribution yield, essentially the percentage of cash income that you might potentially expect on an investment based on its recent share price. We use the 30-day SEC yield, which calculates the cash income over the past 30 days, annualizes it, and divides it by the share price at the end of the last observation period. This method is not perfect, and future payouts, the rates, are never guaranteed for any instrument on this table today. We'll explain why as we go through each one in greater detail. Nonetheless, the 30-day SEC yield is still the most current measure that we have, and it should give you a good feeling for what cash payouts you might have received had you invested historically. That said, the cash income is only one part of what an investor can earn from an investment. Capital gains or losses from rising or falling share prices are the second component. This combined picture is captured here in the five-year trailing total return number that indicates how much annualized total return from both distributions and capital gains or losses you would have seen if you had invested five years ago. And of course, we'll also give you our thoughts on who should or should not consider these particular investments later on. Do note that all the data and numbers in this video are as of the time of this taping on July 2nd, 2026, and that past performance is not an indicator of future results or outcomes. So first on our list of three are collateralized loan obligations or CLOs. CLOs are highly structured investments that essentially take a portfolio of mostly non-investment grade corporate loans and divide it into different tranches that are ranked in order of priority when the cash flow is distributed. CLOs are not for everyone, but the best rated ones come with a strong track record. As far as we know, not a single triple A rated tranche of a CLO has ever defaulted. Not even during the great financial crisis of 2008 and 2009 or COVID. For CLOs, we have JAA, Janice Henderson's AAA CLO ETF, as our example here, which, as the name says, is AAA rated. It has $28 billion in total assets, making it the largest CLO ETF at the time of this taping. Do note that there are other CLO ETFs out there, including some with higher risk and higher return strategies. But we will leave them aside for the purposes of this video. For our members, please refer back to this video on JAA versus other CLO ETFs if you need a refresher. So, with its strong rating and track record, JAA is considered basically free of credit risk by many market analysts, and its share price has historically fluctuated only slightly, which means that your initial investment should be largely protected. However, it remains a highly structured product at its core, which may imply some residual operational risks. The underlying corporate loans in JAA's portfolio are usually floating rate, which means that JAA yields will generally follow the Fed funds rate closely, although with a bit of a spread or a bit of extra yield on top. JAA is liquid as an ETF, and its distributions are fully taxable as ordinary income. As for its track record, JAA's latest distribution yield was 4.72%. In comparison, the three-month T-bill paid about 3.82% at the time of this taping. The annualized total return over the past five years was 4.84%, so very similar to the cash distributions, which tells us that JAA did not generate much capital gains, as it is indeed not set up to do anyway. JAA and other highly rated CLO ETFs might be something for an investor who wants a cash alternative, an investment that is almost as safe and liquid as cash or short-term T-bills, but earns a higher return. And the fact that JAA also has a track record of only small fluctuations in a share price is usually taken as a sign that your initial investment is largely protected. What speaks against JAA then, right? Besides the small share price fluctuations? Well, it's really whether you can get comfortable with highly structured products. If you can, then JAA might be a good addition to your portfolio. But if you just don't trust the alchemy of squeezing a slice of AAA risk out of a portfolio of non-investment grade loans, so to speak, then JAA is not for you. Don't buy an investment that keeps you up at night. The few basis points and difference may just not be worth it. Second on our table today are dividend shares. Dividend shares or dividend equity are essentially regular common shares with a track record of paying high and sustainable dividends. You can select them yourself or buy an instrument like Schwab's US Dividend Equity ETF, SCHD, which we've selected for this comparison because many of our Diamond Nestic members and regulars own SCHD in their portfolio and/or have asked about it recently. SCHD has total assets of $96 billion, invested into 103 positions, mainly but not exclusively, SP 500 large caps. In principle, owning SCHD is like owning any equity fund in that it exposes you to the full principal risk of the portfolio. In good times, you'll get the upside from owning the shares, but in bad times, you'll also take the full hit from declining prices, and yields are not guaranteed because dividends are never guaranteed. Even though, if we look at the history, many, if not most, dividend-paying companies will try to keep their payouts as stable as possible through times good and bad. Given its size, liquidity is generally not an issue for SCHD. And one more advantage of a dividend strategy: if all other conditions such as the minimum holding period are met, the dividends may be considered qualified by the IRS and taxed the lower long-term capital gains tax rates. In fact, this applies to almost 100% of SCHD's dividends. It also means that SCHD's distribution yield of 3.28% may be equivalent to as much as 4.17% for taxpayer in the highest federal income tax bracket when compared to fully taxable interest income, which is not bad at all, especially if you consider that with SCHD, you would have gotten some sizable principal gains on top over the past five years. SCHD's five-year trailing total return from both dividends and share price increases were more than decent, 8.51% annualized over this period. There are other dividend funds on the market that have historically higher total returns than SCHD, but this often comes at the price of a lower distribution yield. As Marcus likes to say, dividend funds come in many different flavors. And if that's more your cup of tea, then check out Marcus's latest dividend fund mini-series, which covers Schwab's SHD, Vanguard's VYM and VIG, and Fidelity's FDVV so far. All linked below for your convenience. So to summarize it in my own words then, SCHD could be mainly interesting for investors who like the combination of a track record of decent total returns and share price growth with attractive distribution yields. Now, they're never guaranteed going forward, but a 3.28% 30-day SEC yield is not bad as a start, and the 4.17% tax equivalent yield for someone in the highest federal tax bracket even gets us closer to JAA's fully taxable 4.72%. The main difference lies in the principal protection though. JAA almost tries to guarantee your invested capital, but doesn't offer inflation protection. It's really best considered a cash alternative, as I mentioned earlier. SCHD, on the other hand, remains at its core an equity fund, which means that it offers some protection against inflation, but also exposes you to real principal risk. The share price will go up and down with the markets, meaning that with SCHD, your initial investment is never guaranteed. But you may benefit if the markets do well in the long run, and you may lose out if they don't. Which leads us to the third investment for today: covered call strategies. Covered call strategies are also built around an equity portfolio, but try to maximize the income generated by writing call options on the shares they own. When you sell a call option or write a call option, as the industry says, you collect a premium, but give the buyer the right to buy a certain stock from you at a predefined price at some point in the future. This is known as the strike price. If the stock price doesn't go higher than the strike price, nothing happens. You just collect your options premium as extra income. If the stock price rises above the strike price though, the buyer will pretty much always exercise the option and buy the stock from you for less than what it's now worth on the open market. This is the mechanism that caps your upside with a covered call strategy. In any case, though, you still keep the options premium. Some investors set up covered call strategies on their own, but more do it indirectly via ETFs like JEPI, JP Morgan's Equity Premium Income ETF, which is assets of $44 billion and holds 113 equity positions on which it writes call options. The upside of the strategy is clear. You keep the dividends that the stocks in your portfolio pay, plus you earn options premiums on top. With this strategy, however, you keep the full equity risk of your portfolio on the downside. Your position will fall with the market, while your upside is capped because the options put a ceiling on your capital gains, even in the strongest market. You also carry some residual options risk, but this should be minimal if well executed. And of course, both dividends and options premiums will fluctuate with the economy and the markets, so your payout is not guaranteed. And if you're interested in learning more about cover calls, autocallables, and other higher yielding income opportunities this year, come on over and join the growing member community in our VIP Investment Club, especially if income generation and income protection are top priorities for you this year as rates may potentially move lower. Our Independence Day sale ends on Sunday, July 5th, so there's just a few short days left to save. Use coupon code BONS2026 at checkout to grab your $100 discount. Our Diamond Nestec VIP Investment Club is the ideal place for you if one or more of these points apply to you. 1. You're already in retirement and want to have a forum for an extra pair of eyes for critical questions. 2. You're not yet in retirement but are actively thinking about it for yourself or loved one and want to get ready to take the decisions that lie ahead. 3. You have questions about how a product works and what the benefits and risks may be. 4. You follow the markets and want to be the first to know about safe and or higher yielding investments. 5. You want to understand new offerings and trends and decide whether they might be something for your portfolio. 6. You want to exchange perspectives with a like-minded community of safety conscious and income-minded investors who do not want to give up on good returns either. And seven, you're a lifelong learner who enjoys discovering hidden investment gems and sharing with others in a more private setting. So if you check one or more of these boxes, visit our website at www.diamondestic.com and click on this yellow Private VIP Investment Club button to learn more and join us today. The coupon code BONS2026 can also be used through Sunday, July 5th to get $100 off of our popular bond course bundle and individual bond courses. We've also linked everything below this video for your convenience. Now, let's wrap up our overview of Jeppy. Jeppy is a liquid ETF, and the stock dividends it passes to its owners may be treated as qualified dividends by the IRS. However, in 2025, 84.14% of Jeppy's distributions come from options premiums, which are fully taxable as ordinary income. So the potential tax relief here is much smaller than for a direct dividend strategy. Jeppy's 30-day SEC yield stands at 8.29% at the time of this taping, which seems to be the main reason why Jeppy is a fund that our Diamond Nesteg members and regulars often ask about. However, do note that the five-year trailing total returns of Jeppy were only 7.35%. And as our Diamond Nesteg members and regulars know, if the cash distributions are larger than the total returns, this can only mean that the share price went down, which is indeed the case here. While Jeppy's 8.29% 30-day SEC cash distribution yield is attractive, its share price is down 6.42% over the past five years, which is not the end of the world if you're looking mainly for income, but something to keep in mind if you want some potential capital growth as well. So when would you go for which fund? Now, both SCHD and JEPI are equity funds with full exposure to any downside in the markets, and both of them cannot guarantee their distribution yield. So it really comes down to one key question. Are you comfortable with a fund whose income stream relies basically on options? Just like some folks don't like the heavy financial engineering that CLO ETFs use, others do not like the derivatives that funds like JEPI use. You should really only take a deeper look into JEPI if you are comfortable with its use of options to generate income. If you're not, then SCHD may be the better choice, despite its lower distribution yield historically. And if you don't have a clear opinion here andor just can't decide, you may even mix and match the different products. Bringing us to the next part of today's discussion. What's our perspective? In my mind, all three of the ETFs for higher income that we discussed today can serve a constructive role in a portfolio. JAA is an investment that is almost as safe and liquid as cash or short-term T-bills, but earns a higher return, a higher yielding cash alternative if you want. Triple A rated CLO tranches have a perfect track record, as far as we can tell. But of course, past performance is not indicative of future results or outcomes, and you'll need to be comfortable with the degree of financial structuring involved in making JAA work before you buy for your personal portfolio. SCHD or any other dividend strategy is an equity investment that can generate an attractive income stream, especially if you're in a high tax bracket and will benefit from the potential taxation as qualified dividends. Like any equity investment, SCHD offers some protection against inflation and lets you keep the upside from the markets. But it also exposes you to real principal risk when share prices go down. And JEPI as an equity investment that squeezes the most income out of an equity portfolio, so to speak. The distribution rates can be very attractive, and the covered call strategy doesn't add to the underlying principal risk. But you remain fully exposed to falling share prices while your upside is capped. And of course, Jeppy will only be for you if you can get comfortable with its reliance on options for its distributions and returns. Do note though, I think that JAA, SCHD, and JEPI, they are best used to diversify a portfolio and enhance its risk return profile, but are less suited as fundamental core investments for the base part of an income-oriented portfolio. When I think about the personal retirement plans that Marcus and I have, for example, our first priority would be to lock in a safe, stable, and predictable income that lasts a lifetime, that is guaranteed in the base part of our portfolio. And if we were retiring now or about to retire, as I've told our VIP investment club members already, we would opt first for fixed index annuity or FIA with an income rider because the rates are that good at the moment. And if this is something that you might be interested in, then check out this fixed index annuity video here, which I've also linked below for you. And only after we've sorted out our guaranteed lifetime income streams would I then, as a next step, add additional instruments like JAA, SHD, or JEPI to diversify my portfolio. I do like the additional income potential as well, but that's me and Marcus. What about you? Are you going to check out JAA, SHD, or JEPI after this? Or do you already own some or all of these ETFs? Or perhaps you're thinking of testing the waters in the brand new autocallable ETF space in this Kai video here that we talked about recently. Drop a comment below and let me, Marcus, and the rest of the community know. And again, if income generation and income protection are top priorities for you, come on over and join the growing member community in our VIP Investment Club, where these conversations are happening every day. Our Independence Day sale ends on Sunday, July 5th, so there's just a few short days left to save. Use coupon code Bonds2026 at checkout to grab your $100 discount. Visit our website at www.diamondnestec.com and click on this yellow private VIP Investment Club button to learn more and join us today. The coupon code Bonds2026 can also be used through Sunday, July 5th to get $100 off of our popular bond course bundle and individual bond courses. We've also linked everything below this video for your convenience. Alright, Diamond Estec members, Super Savers, and Course fans, I hope you enjoyed today's video and learned something new. And see you again very, very soon with more brand new wealth-building content for your financial journey.