55-Year-Old Dividend Investor Earning $25,000 a Month Shares 7 Stock Picks, Calls Yield Chasing a ‘Terrible’ Mistake for Young Investors
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55-Year-Old Dividend Investor Earning $25,000 a Month Shares 7 Stock Picks, Calls Yield Chasing a ‘Terrible’ Mistake for Young Investors
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Dividend stocks could make a comeback this year as concerns over valuations and demand temper enthusiasm for AI stocks and investors seek steady income streams. Data shows that from 1960 through 2023, a whopping 85% of the cumulative total return of the S&P 500 Index came from reinvested dividends and compounding.
A few months ago, someone asked r/Dividends – a community of over 650,000 members on Reddit – whether anyone was living off dividend income and how much investment was needed to reach that milestone. The question prompted a lively discussion with many investors sharing their portfolios and success stories.
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An investor said he was living off his dividend income and made $25,000 per month with about a 7% return in invested funds. The 55-year-old said he converted a lot of growth investments into dividend-paying equities but advised young investors to focus on total returns and avoid chasing yields.
“I made terrible mistakes early on chasing yield in my 30s, wanted ‘passive income’. No point at that age. Biggest asset when young is time and growth. Anyone younger than 50 should start with total return, dial growth down a bit if it helps you sleep. I’ve just started my dividend portfolio and learning a lot. There are many different types of risk to consider.”
The investor said he had a fairly diversified portfolio of dividend funds and shared a few names from his portfolio. Let’s take a look at these dividend holdings.
Cohen & Steers Total Return Realty Fund (RFI) is a closed-end fund focusing on real estate stocks. The fund has a distribution rate of about 8% and pays monthly. American Tower, Welltower, Prologis, Digital Realty Trust, Simon Property and Equinix are among the fund’s biggest holdings.
PIMCO Corporate & Income Opportunity Fund
The PIMCO Corporate & Income Opportunity Fund (PTY) mainly invests in fixed-income securities to generate income and targets capital appreciation. It has a monthly distribution rate of over 9%.
The iShares Interest Rate Hedged High Yield Bond ETF
The iShares Interest Rate Hedged High Yield Bond ETF (HYGH) exposes investors to U.S. high-yield corporate bonds. The fund hedges against interest rate risk using treasury futures or similar instruments.
VanEck High Yield Muni ETF
The VanEck High Yield Muni ETF (HYD) provides investors exposure to high-yield municipal bonds. Income from these bonds is usually exempt from federal taxes. HYD has a dividend yield of more than 4%.
The investor earning $25,000 per month also had JPMorgan Equity Premium Income ETF (JEPI) in his portfolio. The fund makes money by investing in some of the most notable large-cap U.S. stocks and selling call options. JEPI is ideal for those looking for exposure to defensive stocks. JEPI usually underperforms during bull markets but protects investors against huge losses during bear markets, as most of its portfolio consists of large defensive equities like Trane Technologies PLC (NYSE:TT), Southern Co. (NYSE:SO) and Progressive Corp. (NYSE:PGR), among many others.
iShares Core Dividend ETF
The iShares Core Dividend ETF (DIVB) tracks the Morningstar U.S. Dividend Valuation Index and invests in companies with a strong dividend payment history. Cisco, IBM, Chevron, Verizon, Johnson & Johnson and Procter & Gamble are among the fund’s biggest holdings.
Eaton Vance Tax-Advantaged Global Dividend Income Fund
The Eaton Vance Tax-Advantaged Global Dividend Income Fund (ETG) generates dividend income that qualifies for favorable federal income tax treatment. It invests in dividend stocks with growth potential. ETG has a distribution rate of about 8.4%.
