Best high-yielding covered call ETFs for a dividend-rich retirement

Covered call ETFs have become highly popular in the United States because of their high dividends and regular payments. The JPMorgan Equity Premium Income ETF (JEPI) has accumulated over $37 billion in assets, and its inflows are soaring. So, let us look at what covered call ETFs are and identify some of the best funds to buy. 

What are covered call ETFs and are they good investments?

A covered call ETF is a fund that has two integral parts: stock growth and dividend payouts. These funds invest in stocks and then sell their call options. Some covered call ETFs invest in one stock while others invest in a group of stocks or indices.

For example, JEPI invests in about 100 S&P 500 index stocks and then sells call options on the index. On the other hand, the YieldMax COIN Option Income Strategy (CONY) ETF invests in Coinbase and then sells call options on the same stock.

Covered call ETFs hope to benefit when the stock rises. They also benefit from the premium generated when the call option is placed, which is then distributed to shareholders through dividends. 

Historically, covered call ETFs generate strong dividends than their underlying assets. For example, CONY pays dividends, which Coinbase stock does not pay. However, they often underperform their underlying assets over time.

Best covered ETFs to buy and hold

Some of the best covered call ETFs to buy are the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ), Neos S&P 500 High Income ETF (SPYI), and Goldman Sachs S&P 500 Core Premium Income ETF (GPIX).

JPMorgan Nasdaq Equity Premium Income ETF (JEPQ)

The JPMorgan Nasdaq Equity Premium Income ETF is one of the best covered call ETF to buy and hold. As the name suggests, this fund aims to regular dividends by investing in the 100 companies that make the Nasdaq 100 index. It then sells call options of the same index. 

JEPQ has over $21 billion in assets and charges a modest 0.35% in fees. According to its website, it has a dividend yield of about 9.57%, which is higher than the Nasdaq 100 index’s 0.55%.

JEPQ’s benefit is that its total return is often better than that of the Invesco QQQ ETF (QQQ). Its total return in the last 12 months was 23.68%, higher than QQQ’s 26%. 

Goldman Sachs S&P 500 Core Premium Income ETF (GPIX)

The Goldman Sachs S&P 500 Core Premium Income ETF is the company’s answer to JPMorgan’s JEPQ. Its main difference is that it has invested in the 500 companies in the S&P 500 index and then sold call options on the index. JEPI has only invested in less than 120 companies in the fund. 

The biggest companies in the GPIX ETF are Apple, NVIDIA, Microsoft, Amazon, and Meta Platforms. Most importantly, its performance is almost similar to the S&P 500 index one. Its total return in the last 12 months was 23% compared to SPY’s 26.17%.

YieldMax TSLA Option Income Strategy ETF (TSLY)

The YieldMax TSLA Option Income Strategy ETF is another popular fund with over $1.18 billion in assets and a yield of 88%. 

This is a popular fund that invests in Tesla and then sells call options in Tesla. As such, you can earn a monthly dividend by taking advantage of the Tesla shares. The challenge, however, is that the TSLA stock always outperforms TSLY. It has risen by almost 90% in the last 12 months compared to TSLY’s 41%.

Some of the other popular covered call ETFs to consider are Neos S&P 500(R) High Income (SPYI), NEOS NASDAQ-100(R) High Income ETF (QQQI), and Defiance S&P 500 Enhanced Options 0DTE Income ETF (WDTE).