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As investors look for attractive opportunities to funnel capital into the markets following the first rate cut, dividend stocks are gaining ground. In a recent interview with CNBC, John Linehan, T. Rowe Price’s chief investment officer of equity, said dividend stocks outperform the market over the long term. The analyst said he prefers dividend stocks with decent yields and attractive valuations.
Looking beyond rate cuts, what kind of dividend stocks and ETFs can help you reach dividend income significant enough so you could stop living paycheck to paycheck? There are plenty of success stories that can provide beginners with inspiration and guidance.
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About two years ago, someone shared their detailed dividend income report on the r/dividends community on Reddit, saying they reached about $60,000 in annual dividend income, with their portfolio yielding 9%.
Almost the entire portfolio of the investor was allocated to dividend ETFs. Here’s what he said about this:
“My money is in closed-end funds primarily so I try to understand them before I invest in them. A lot of them use leverage which means they got hit this past quarter with the increase in rates. We’ll see long term how that plays though.”
The dividend investor said the total worth of his portfolio was about $1.1 million, with about $600,000 in “high dividend.”
The investor was asked how he could save this kind of money for his investments. Here’s what he said:
“I started around 21. I’ve been saving and working in tech. I got lucky on a couple ipos and a house sale. So it really wasn’t a steady thing. I didn’t miss on my IRA and 401(k) contributions but that is a separate account with about 500k.”
This dividend investor got a lot of appreciation on Reddit for generating such a high yield from his investments. However, he repeatedly said he’s setting higher goals for himself and trying to save more.
“But there needs to be much more before I can take my foot off the gas. Still grinding and not spending much. My wife drives a 2015 minivan. We don’t take fancy vacations. Eating out is generally Chipotle, Chick Fil A and Tijuana Flats.”
A lot of people grilled the investor on being too worried about his spending and urged him to take it easy and live his life. In response, the Redditor said that he was not “frugal.”
“I have a new house on 1/2 acre land. My cars are paid for. We go out to eat when we want. I buy/build a new gaming PC every two years. We just don’t do the expensive versions of those things. Although last year I splurged and got the 3080 instead of the normal 3060 I’d have purchased.”
There were about 20 dividend funds in the portfolio of this dividend investor. Let’s take a look at the biggest funds in this high-yield portfolio.
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Global X Russell 2000 Covered Call ETF
Global X Russell 2000 Covered Call ETF (NYSE:RYLD) was the biggest holding of the Redditor earning about $60,000 in annual dividend income. RYLD generates income by selling call options on the small-cap-heavy Russell 2000 Index. The ETF yields about 12%. Being a covered call ETF, RYLD is also not risk-free and often posts losses during down markets. The ETF is now in the limelight as analysts believe small-cap stocks will be among the top beneficiaries of an easing monetary environment.
First Trust Energy Infrastructure Fund
First Trust Energy Infrastructure Closed Fund (FIF) was the second-biggest holding of the Redditor when he shared his portfolio details a couple of years back. However, in May this year, the fund was merged into FIRST TRUST EXCHANGE-TRADED FUND VIII (EIPI).
Western Asset Inflation-Linked Opportunities & Income Fund
About 7% of the Redditor’s portfolio generating $60,000 in dividend income per year was allocated to the Western Asset Inflation-Linked Opportunities & Income Fund (WIW). The fund primarily invests in U.S. treasuries. It yields over 8% and pays monthly income.
Quadratic Interest Rate Volatility and Inflation Hedge ETF
About 6% of the portfolio of the Redditor earning $60,000 in annual dividends was allocated to Quadratic Interest Rate Volatility and Inflation Hedge ETF (IVOL). The fund invests in treasuries and interest rate options, helping investors hedge against fluctuations in interest rates and inflation. Roughly 80% of the fund’s portfolios is invested in Schwab U.S. TIPS ETF, which tracks the total return of an index composed of inflation-protected U.S. Treasury securities.
Eaton Vance Corporation Tax-Managed Global Buy-Write Opportunities Fund of Beneficial Interest
Eaton Vance Corporation Tax-Managed Fund (ETW) invests in U.S. and international stocks and generates income by selling call options on a portfolio of its holdings.
It’s a tax-efficient fund as it minimizes taxable distributions through its options strategy and managing the timing of stock sales. Apple, Nvidia, Amazon and Microsoft are among the fund’s top holdings.
Eagle Point Credit Company Inc.
Eagle Point Credit Company (ECC) is a publicly traded fund that primarily invests equity tranches of collateralized loan obligations (CLOs), which are high-risk, bundled leveraged loans from companies with limited credit access. These are high-yield, high-risk investments.
Cohen & Steers REIT and Preferred and Income Fund
The portfolio details publicly shared by the Redditor earning about $60,000 in dividend income per year showed about 2% of his total investments were in Cohen & Steers REIT and Preferred and Income Fund (RNP), which generates income by investing in real estate stocks. The fund also invests in fixed income, including debt and preferred securities of companies operating across diversified sectors.
Nuveen Real Asset Income and Growth Fund
Nuveen Real Asset Income and Growth Fund (JRI) invests in real estate stocks and fixed-income securities. Its portfolio consists of common stocks, preferred securities and companies’ debt involved in infrastructure, facilities, services and REITs.
Interest Rates Are Falling, But These Yields Aren’t Going Anywhere
Lower interest rates mean some investments won’t yield what they did in months past, but you don’t have to lose those gains. Certain private market real estate investments are giving retail investors the opportunity to capitalize on these high-yield opportunities and Benzinga has identified some of the most attractive options for you to consider.
Arrived Homes, the Jeff Bezos-backed investment platform, offers a Private Credit Fund. This fund provides access to a pool of short-term loans backed by residential real estate with a target of 7% to 9% net annual yield paid to investors monthly. The best part? Unlike other private credit funds, this one has a minimum investment of only $100.
Don’t miss out on this opportunity to take advantage of high-yield investments while rates are high. Check out Benzinga’s favorite high-yield offerings.
Wondering if your investments can get you to a $5,000,000 nest egg? Speak to a financial advisor today. SmartAsset’s free tool matches you up with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you.
This article 44-Year-Old Earning $60,000 Annually In Dividends Says He’s ‘Still Grinding And Not Spending Much’ As He Relies On These 8 Investment Picks originally appeared on Benzinga.com
