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A growing number of Americans are turning to dividend income to offset the impact of inflation and increase their savings. Data from S&P Global shows that dividends accounted for about 7.9% of the total average income as of the second quarter of 2024, up from just 2.7% in 1980. Since 1936, over one-third of the total equity return of the S&P 500 came from dividend stocks.
But which dividend stocks can provide significant and reliable income for average investors with a limited budget? Let’s see a case study for ideas and inspiration.
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A few days ago, someone on r/Dividends – a Reddit discussion board with over 660,000 followers – sought advice from older and experienced dividend investors on how to reach a decent dividend income level and reduce tax liabilities. The question prompted an insightful discussion, with many Redditors sharing their portfolios and success stories.
An investor revealed he was making $73,500 in dividend income per year with an initial investment of $580,000.
“I’m 60. The bulk of my portfolio is in retirement accounts. It was in a 401(k) most of my working years, so I didn’t have the option for true dividend investing. Now that I’m retired, I have everything in an IRA and a Roth IRA. We currently live off my dividends as well as my wife’s pension and her social security.”
The investor shared in other Reddit posts that he recently retired after working in the tech industry and explained his perspective on being financially independent.
“The power of being financially independent … I have always saved into my retirement accounts. A couple years ago, I realized I had enough to live on for the rest of my life without ever having to work again. I continued a couple more years, but I can confidently say that work hits differently when you no longer need to be there. Bs projects move to the back of the line. You can focus on things you feel are a priority,” he said.
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The investor shared the names of the top dividend stocks in his portfolio. Let’s examine them.
Sixth Street Specialty Lending
Texas-based business development company Sixth Street Specialty Lending (TSLX) has a dividend yield of about 9.6%. The stock has increased by 5% over the past 30 days.
Blackstone Secured Lending
Blackstone Secured Lending (BXSL) is a business development company mainly investing in private U.S. companies’ first-lien senior secured debt. The company has a dividend yield of about 10% and over 98% of its investments are first-lien senior secured, which means its loans are safe and have assurances for repayments even if borrowers default.
NEOS Nasdaq-100 High Income ETF
NEOS Nasdaq-100 High Income ETF (QQQI) exposes investors to Nasdaq 100 companies and generates income by selling covered call options on the index. It pays a monthly income and has a yield of about 13.9%.
Blue Owl Capital
Blue Owl Capital Corp. (OBDC) is a business development company. Earlier this month, the company’s shareholders approved all proposals related to its merger with Blue Owl Capital Corp. III (OBDE).
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Barings BDC
Barings BDC (BBDC) is a North Carolina-based business development company. The stock has a dividend yield of about 10%. In November, the company posted third-quarter results. GAAP EPS reached $0.29, missing Wall Street consensus by $0.01. Total investment income totaled $70.85 million, surpassing the market estimate by $0.24 million.
Arbor Realty Trust
With a dividend yield of 12.6%, Arbor Realty Trust (ABR) is a mortgage REIT with assets in the U.S. multifamily, single-family rental and commercial real estate markets. Over the past year, the stock has been down 3.6%.
PIMCO Dynamic Income Fund
The PIMCO Dynamic Income Fund (PDI) invests in fixed-income securities to generate income and appreciate capital. It focuses on mortgage-backed securities, investment-grade and high-yield corporate and sovereign bonds from developed and emerging markets.
Capital Southwest Corporation
Capital Southwest Corporation (CSWC) is a Texas-based business development company with a dividend yield of over 11%. The company recently posted its preliminary third-quarter estimated results. Net investment income in the third quarter was estimated between $0.62 and $0.63, compared with the market estimate of $0.62.
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NEOS S&P 500 High Income ETF
NEOS S&P 500 High Income ETF (SPYI) is a high-yield covered call ETF that pays monthly dividend income. It invests in some of the top S&P 500 companies and generates extra income by selling call options on stocks, generating extra premium income for shareholders.
Ares Capital
Business development and investment company Ares Capital Corporation (ARCC) yields about 8.2% and has gained popularity among Redditors. Last year, Oppenheimer said in a note that Ares Capital was positioned to benefit under both Republican and Democrat administrations.
BlackRock Capital Allocation Trust
BlackRock Capital Allocation Term Trust (BCAT) was also part of the retiree’s portfolio, earning $73,500 a year in dividends. BCAT is a closed-end fund that invests in stocks, fixed-income and alternative investments. Its distribution rate is about 22%.
The Simplify Volatility Premium ETF
The Simplify Volatility Premium ETF (SVOL) generates income by shorting the CBOE Volatility Index (VIX) and betting that volatility will remain stable. Since the broader market tends to go higher in the long term, investing in this ETF suits those looking for stable income checks.
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.
Real estate is a great way to diversify your portfolio and earn high returns, but it can also be a big hassle. Luckily, there are other ways to tap into the power of real estate without owning property. Arrived Home’s Private Credit Fund’s has historically paid an annualized dividend yield of 8.1%*, which provides access to a pool of short-term loans backed by residential real estate. The best part? Unlike other private credit funds, this one has a minimum investment of only $100.
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This article 60-Year-Old Retiree Earning $73,500 in Dividends Shares His Top 12 Stocks, Explains the ‘Power of Being Financially Independent’ originally appeared on Benzinga.com