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Dividend investing, when done right, can be an effective way to build a stable income stream. Data shows that about 85% of the S&P 500’s cumulative total returns have come from reinvested dividends since the 1960s. But which dividend stocks should you invest in to build a long-term income portfolio? Let’s look at an idea success story.
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In December last year, an investor shared her detailed income report and portfolio on r/Dividends, a discussion board for income investors on Reddit with 615,000 members. The investor, who said she is a 40-year-old mother of three young children, stated that her total portfolio value was approximately $1.04 million.
The investor’s portfolio screenshots showed that she earned $52,000 per year or $4,300 per month. About $7,000 of this came from interest, while the remainder ($44,926 per year or $3,743 per month) came from dividend stocks.
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When asked about her goals and retirement plan, the investor responded:
“I just turned 40, so my goal is next year. I still have a million in other accounts, like a robo-advisory account that is mainly in ETFs in the US market, a little bit of home equity and my retirement account husband. If I took the other million and just doubled all my holdings in this account, I could technically get 100,000 a year in dividends and interest payments. I have three young children, so unfortunately I need a lot more income to deal with to retire, so I’m doing some trading and increasing my income this year to achieve some goals.”
The investor was asked if she focuses only on dividend stocks. This is what she said:
“This is my income portfolio. I have some large US ETFs in my other accounts that will give me some growth. This one is purely to replace my income over the next year or so. I’m mainly focusing on undervalued investments.”
During the discussion, the investor also shared how she gained wealth through investing. She sold design courses online.
“In my best year (2021), I made over $920,000 from profit selling courses in the design world. I became the number one design course in the world with over 500,000 students on some of the largest course platforms,” she said.
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Let’s take a look at some of the best stocks and ETFs in the portfolio that generated $3,700 per month in dividends.
Brookfield Property
With a dividend yield of approximately 8%, Brookfield Property Preferred Pref Class A (NASDAQ:BPYPM) is a preferred stock issued by Brookfield Property Partners. The investor who earned $3,700 a month in dividends said it was the biggest income generator in her portfolio, with an annual income of $12,761. Since there is not much information about the company, the investor was asked more about BPYPM. This is what she said:
“BAM is a solid large company and as a preferred instrument it will be favored in the debt pile if the company ever goes bankrupt. I believe in this story so much that I put 100,000+ into it. This is not investment advice, so this is not exactly what I did. I’m taking the risk here that (A) BAM will redeem the bond fund when it is able to do so, (B) they won’t go bankrupt and (C) I have a long time horizon for dividends to collect and not have to have money for everything.”
The investor said her father was an institutional money manager and gave her the idea about this stock.
JPMorgan Equity Premium Income ETF
The investor’s second-largest position was in the JPMorgan Equity Premium Income ETF (NYSE:JEPI), which earned $3,700 per month in dividends. She said the fund generated about $5,535 a year in revenue.
JEPI usually underperforms during bull markets, but protects investors from huge losses during bear markets as the bulk of the portfolio consists of large defensive stocks such as Trane Technologies PLC (NYSE:TT), Southern Co (NYSE:SO) and Progressive Corp (NYSE :PGR). among many others.
Real estate income
Realty Income Corp (NYSE:O) returned about $3,792 per year for the investor who earned $3,700 per month in dividends. Investors recently focused on Realty Income Corp (NYSE:O) after the company reported third-quarter results. The company raised the lower end of its 2024 FFO guidance as the metric managed to exceed Wall Street’s estimate for the September quarter. The monthly dividend yield is 5% and the REIT has increased its dividends for 30 consecutive years.
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Starwood Property
Starwood Property Trust Inc. (NYSE:STWD) is a Connecticut-based REIT focused on commercial mortgage lending and equity investments. It has a dividend yield of over 9%. Commercial and residential lending (69% of assets), as well as infrastructure lending and services, make up a large part of the company’s business.
Schwab US Dividend Equity ETF
The investor who earned $3,700 in monthly dividends had Schwab US Dividend Equity ETF (NYSE:SCHD) in her portfolio. The ETF tracks the Dow Jones US Dividend 100 Index and provides exposure to some of the top dividend stocks traded in the US, including Home Depot, Coca-Cola, Verizon, Lockheed Martin, Pepsi and AbbVie, among others. Because SCHD’s investments tend to be conservative dividend payers, it is suitable for investors who are close to retirement and looking for consistent dividend income.
Verizon Communications
With a yield of over 6% and 18 consecutive years of dividend growth, Verizon Communications Inc. (NYSE:VZ) a popular dividend stock among income investors. The Redditor who earned $3,700 in monthly dividends said VZ was part of her portfolio.
Pfizer
Pfizer Inc. (NYSE:PFE) has a dividend yield of around 6% and has increased its payouts for 15 consecutive years. The pharmaceutical giant spends approximately $2.5 to $3 billion on research and development every quarter and has more than 110 candidates in the pipeline.
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AT&T
AT&T Inc. (NYSE:T) was another high-yield dividend stock in the investor’s portfolio, contributing to her $3,700 monthly income. AT&T offers a return of more than 5%. The share has risen 40% in value over the past year. Last month, Citi analysts highlighted AT&T (NYSE:T) as a positive catalyst ahead of the analyst meeting scheduled for December 3, noting expectations for further fiber expansion and a possible multi-year stock buyback program.
The iShares Preferred and Income Securities ETF
The iShares Preferred and Income Securities ETF (NASDAQ:PFF) invests in preferred stocks and other income-producing securities. The fund pays dividends monthly and yields approximately 6%.
Dominion energy
Virginia-based utility Dominion Energy Inc (NYSE:D) was also part of the investor’s portfolio, earning her $3,700 monthly. The stock has a dividend yield of approximately 4.5%. Shares of the natural gas and electric utility are up about 28% in the past year.
Certificates of Deposit (CDs)
The investor, who earned a total of $4,300 per month from her $1.04 million portfolio, said she owned certificates of deposit (CDs) that earned an average interest of 5.4% per year, earning about $7,000 annually.
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This article 40-Year-Old Mother of Three Earns $3,700 a Month in Dividends Shares Her Portfolio: Top 10 Stocks, ETFs originally appeared on Benzinga.com
