Looking for Steady Passive Income? Look At SCHD, JEPI and Realty Income

By Vandita Jadeja Published Sep 24, 1:31PM EDT

Key Points

With the right mix of dividend stocks and ETFs, you can enjoy passive income for decades.
A mix of two ETFs and one REIT stock will ensure reliable income.

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Looking for Steady Passive Income? Look At SCHD, JEPI and Realty Income — © Marko Aliaksandr / Shutterstock.com

Passive income can be appealing to all. It is a great way to generate extra cash, but if you’re not interested in a side hustle or taking on risk, you might want to consider investing your money in assets that can generate income for you. Investing in the stock market isn’t risk-free, but it has generated steady returns in the past.

Besides dividend stocks, investing in exchange-traded funds (ETFs) is worth considering. An ETF works just like stocks; you can buy and sell them on the stock exchange. It holds a basket of securities and tracks an underlying index. There are hundreds of ETFs and stocks to choose from, but I’ve done the research for you and picked two ETFs and one stock that generate steady passive income.

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Schwab U.S. Dividend Equity ETF

The Schwab US Dividend Equity ETF (NYSEARCA:SCHD | SCHD Price Prediction) is a dividend-focused fund with a yield of 3.84%. This ETF only invests in 103 companies that have high yields. It identifies companies with the history of paying and growing dividends and looks for payout sustainability each year. Hence, its dividends are more dependable than other high-yield ETFs.

It provides steady dividend income from top companies. What sets this fund apart is its sector allocation. About half of its holdings lie in consumer staples, energy, and the healthcare segment. It is not a tech-heavy fund and only allocates 9% in the sector. SCHD’s top 10 holdings include strong dividend-paying companies like AbbVie, Chevron, Verizon Communications, and Coca-Cola. No stock has a weightage higher than 5%.

SCHD had a low expense ratio of 0.06%. If you’re looking to add dividend stocks to your portfolio, SCHD can be an ideal choice. The fund has generated an annualized return of 8.95% in 3 years and 11.77% in 5 years. SCHD announced a recent dividend hike to $0.26.

Energy stocks are a top contributor to the ETF’s ability to generate a high dividend. Combined with the right ETFs and stocks, SCHD can help build a solid retirement portfolio.

JPMorgan Equity Premium ETF

The JPMorgan Equity Premium Income ETF (NYSEARCA:JEPI) tracks the S&P 500 and holds the top 125 U.S. companies. It is a combination of covered calls and equity-linked notes that help generate income. It has a yield of 8.4%, which is higher than the return generated from Treasury bills and bonds. JEPI invests 80% in stocks and 20% in equity-linked notes.

JEPI has a high allocation in the information technology sector (15.6%), followed by financials (13.5%) and industrials (11.8%). Its top 10 holdings include the Magnificent Seven. The ETF pays monthly dividends, and its most recent dividend was $0.36. It has generated a cumulative return of 34.15% in 3 years and 63.39% in 5 years.

The fund has an expense ratio of 0.35%, but its high yield makes up for the operating expense. The actively managed fund does carry slightly higher risk than bonds, but it has an impressive yield. If you’re nervous about buying stocks at all-time highs, this is an ETF worth adding to your portfolio. It offers more than just steady income, and with a high allocation to the tech sector, it will continue to see an upside in the NAV for the near term.

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Realty Income

Besides the above-mentioned ETFs, Realty Income (NYSE:O) is one stock worth considering. It has a juicy yield of 5.43% and has increased dividends 132 times since going public.

While most dividend stocks pay shareholders quarterly, Realty Income pays monthly dividends. Realty Income is a Real Estate Investment Trust (REIT) that owns, manages, and leases properties across the U.S. and Europe. A few of its top tenants include Dollar Tree, 7-Eleven, Dollar General, and Chipotle Mexican Grill.

Exchanging hands for $59, O stock is up 13% year-to-date and is a super reliable stock to buy and hold. The reason I picked Realty Income out of the hundreds of dividend stocks is the solid business model. The company employs triple-net leases, which require the lessee to cover taxes, property insurance, and operating expenses. Plus, its leases have annual rent increases, benefitting Realty Income.

It is on an acquisition spree and has invested billions in new properties. Currently, its portfolio features 15,606 properties operating across 91 industries. The properties are diversified geographically, by industry, and by client. This offers ultimate diversification, reducing risk. It has an impressive occupancy rate of 98.6%, showing it’s a well-run business with a solid growth potential.

About the Author Vandita Jadeja →

Vandita Jadeja is a financial copywriter who loves to read and write about stocks. She believes in buying and holding for long term gains. Her knowledge of words and numbers helps her write clear stock analysis. She has contributed to several publications, including the Joy Wallet, Benzinga, The Motley Fool and InvestorPlace.