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Briefing.com Summary:

*Dividend and income strategies help offset losses in volatile markets, making downturns more tolerable than non-income stocks.

*JEPI benefits from volatility via higher option premiums, delivering steady monthly income and reduced downside versus the S&P 500.

*Trade-off: capped upside and weaker performance in strong bull or low-volatility markets, prioritizing income over maximum total return.

It is tough watching stock prices fall. It is even tougher when those stocks aren't providing an income stream to help offset the losses. In those instances, it is a pure and absolute loss.

That is why many investors are drawn to stocks of companies that pay dividends, providing them an opportunity to collect income on a monthly or quarterly basis. That income is the cherry on top of a rising stock price, and it keeps things from tasting totally sour when stock prices fall.

Recent market action has featured a relatively broad-based decline in stock prices, but it hasn't come close to preventing most companies that pay a dividend from paying their dividend. That risk increases in a prolonged recession, but we're not there either.

We are in a market struggling with inflation concerns, triggered by higher energy prices, and worries that those higher energy prices could ultimately lead to demand destruction that translates into lower growth. It is a highly uncertain time, which is why volatility has risen.

That volatility is driving up option premiums. That is good for a fund like the JPMorgan Equity Premium Income ETF (JEPI), which generates income through a combination of selling options and investing in U.S. large-cap stocks that pay dividends.

Sounds like the perfect combination in today's market. Well, it's good, but it's not perfect. JEPI holds 108 S&P 500 stocks, albeit with less volatility than the benchmark index, but it hasn't been immune from the selling pressure.

This fund, though, is designed for current income, and from that vantage point, it hasn't wavered. That is important for investors aiming for monthly income.

A Fund with Benefits

The benefits of owning a fund like JEPI include the following:

• It pays income monthly, which is a good and reliable cash flow source. Its trailing twelve-month distribution yield is 8.39%.
• It is less volatile than the S&P 500 (1-yr beta is 0.645).
• The option premiums help mitigate capital loss in down markets.
• It pays investors to wait in sideways markets since income is still being generated even if stock prices are stagnant.
• It is actively managed, which is advantageous in volatile environments, but still has a relatively low expense ratio of 0.35%.

This is not a go-to fund in strong bull markets. The reason being is that the fund's upside is capped by selling calls, whereas the S&P 500 itself won't be constrained from capturing a full upside move. Another headwind for JEPI is a low-volatility environment since calmer markets tend to lead to lower option premiums.

Briefing.com Analyst Insight

One can look at JEPI as a fund providing a total-return opportunity, but it is not a fund oriented toward maximum return. It is best suited, therefore, for investors with lower risk tolerances who are focused on generating an income stream in any market environment.

That stream can be more rewarding in volatile or range-bound markets, but it is a reward just the same to be able to count on it as a steady income source.

--Patrick J. O'Hare, Briefing.com