3 High-Yield ETFs That Can Replace Your Second Income

The Schwab U.S. Dividend Equity ETF (SCHD) has become a favorite among dividend investors seeking stability and consistency. While its 3.90% yield isn’t the highest available, the fund distinguishes itself through its focus on high-quality companies with strong fundamentals. SCHD aims to mimic the returns of the Dow Jones U.S. Dividend 100 Index, investing in 103 large-cap stocks that pay consistent dividends and demonstrate robust cash flow and profitability.

The fund’s sector allocation emphasizes defensive positions in energy, consumer staples, and healthcare—sectors known for remaining stable during economic turbulence. Top holdings include established companies like Cisco, PepsiCo (NASDAQ:PEP), and Home Depot, providing investors with exposure to reliable dividend payers. As a passively managed fund, SCHD maintains low costs with an expense ratio of just 0.06%, translating to only $6 annually per $10,000 invested.

SCHD’s track record reinforces its appeal, with approximately 38% returns over five years and net assets totaling $71.55 billion. Sponsored by Charles Schwab, one of the country’s largest brokerages, the fund has been operating since October 2011, building a reputation for delivering consistent performance while keeping costs minimal for investors seeking reliable dividend income.

The JPMorgan Equity Premium Income ETF (JEPI) employs a sophisticated dual approach to generate income, combining traditional stock investments with options selling. This strategy enables the fund to achieve an impressive 8.37% yield, significantly higher than many traditional dividend ETFs. JEPI screens for both overvalued and undervalued stocks with attractive risk-return characteristics, with a particular focus on low-volatility companies within the S&P 500 index.

The fund’s concentration in information technology, financials, and healthcare sectors includes top holdings such as Nvidia (NASDAQ:NVDA), Alphabet (NASDAQ:GOOGL), and Microsoft (NASDAQ:MSFT). While JEPI’s 5-year return of approximately 10.62% trails SCHD’s performance, its substantial yield makes it attractive for investors prioritizing current income. The fund has accumulated $41.32 billion in net assets, demonstrating significant investor interest in its unique income-generating approach.

JEPI’s enhanced yield comes with higher costs, featuring an expense ratio of 0.35%—substantially more than SCHD’s 0.06%. This higher fee reflects the active management required for the fund’s options strategy. For investors willing to pay premium costs for premium yields, JEPI represents a compelling option in the high-yield ETF space, particularly for those seeking substantial monthly income distributions.

The Vanguard High Dividend Yield ETF (VYM) excels in diversification, investing in more than 500 large-cap stocks of companies paying above-average dividend yields. While its 2.49% yield is the lowest among the three funds, VYM compensates with impressive 5-year returns of approximately 15.13% and massive scale, with net assets totaling $81.29 billion. The fund’s broad exposure makes it ideal for investors seeking comprehensive market coverage.

VYM’s sector allocation spans financials, consumer discretionary, and basic materials, with top holdings including Broadcom (NASDAQ:AVGO) and JPMorgan Chase. This extensive diversification helps mitigate individual stock risk while providing exposure to a wide range of dividend-paying companies. Like SCHD, VYM maintains an ultra-low expense ratio of 0.06%, ensuring that costs don’t significantly erode investor returns over time.

The fund’s combination of broad diversification, competitive long-term performance, and minimal costs makes it particularly suitable for investors building the core of a dividend-focused portfolio. While its yield may not match JEPI’s impressive numbers, VYM offers stability through its extensive holdings and the reputation of Vanguard, known for its investor-friendly approach and low-cost investment products.

Each of these three ETFs offers distinct advantages for income-seeking investors. SCHD provides stability and ultra-low costs, JEPI delivers exceptional yield through its options strategy, and VYM offers broad diversification across hundreds of holdings. Rather than choosing just one, investors might consider combining these funds to create a well-rounded equity portion within a diversified portfolio.

For additional risk protection, the article suggests complementing these equity ETFs with bond funds, particularly valuable during stock market downturns. This balanced approach allows investors to benefit from the income-generating potential of dividend stocks while mitigating overall portfolio volatility. Whether used individually or in combination, these three powerhouse ETFs represent viable tools for building passive income streams that could potentially replace secondary employment or supplement retirement income.