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Millions of young Americans are forging unconventional paths to early retirement, amid a growing desire for financial freedom and greater flexibility in how they spend their time. Data from the Federal Reserve Bank of New York shows that the percentage of people who want to work full-time after age 62 fell to 45.8% in March, down from 55% in March 2014.
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How do young investors use dividend investing for early retirement? Let’s explore a case study.
Last month, an investor shared his detailed income report with portfolio screenshots on r/dividends, a discussion board for income investors on Reddit with 618,000 members. He said he had earned about $61,600 in annual dividend income, or $5,130 per month, and was “finally able to retire.”
“There will come a day when I can put these benefits to good use. For now, we are just reinvesting,” he added.
The investor’s portfolio showed that most of his money was in high-risk, high-yield YIELDMAX ETFs, which generate money by selling call options. Redditors were quick to remind the investor how risky his investments were and why he could face losses during retirement. However, the investor sounded confident, saying he was doing “not too bad right now.”
“Wait until the end of 2024 to see where things are,” he responded to a commentator who warned him that his director was at risk of going to “zero.”
According to the screenshots shared by the investor, the total dividend yield of his portfolio was 9.89%. Since his annual dividend income is $61,600, his total portfolio value was approximately $622,000.
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Let’s take a look at the stocks and funds in the portfolio.
Aberdeen Income Credit Strategies fund
Shares: 7,364.77
Annual income: $8,837.73
Aberdeen Income Credit Strategies Fund (ACP) is a closed-end fund that generates income by investing in loans and debt instruments. It’s risky because ACP invests at least 80% of its assets under management in a mix of senior loans, including sub-investment-grade or ‘junk’ securities. The fund has a distribution percentage of approximately 18%.
YieldMax AI Options Income Strategy ETF
Shares: 143.90
Annual income: $750.95
YieldMax AI Option Income Strategy ETF (AIYY) generates income by selling call options on AI-related stocks or indices. The fund has a distribution percentage of 108%. The secondary objective is to pursue share price growth by tracking C3.ai, whose shares are down 7.6% this year, while AIYY is down 55%.
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Fidelity Capital and Income Fund
Shares: 16,765.79
Annual income: $8,130.07
Fidelity Capital and Income Fund (FAGIX) is another risky fund in the investor’s portfolio that earned $5,130 per month in dividends. FAGIX is a high yield fund exposed to sub-investment grade bonds, junk bonds and equities. It’s up about 10% so far this year and has a yield of about 5%. The investor collected $8,130 per year from his investment in the fund.
Fidelity High Income Fund with variable interest rate
Shares: 25,329.74
Annual income: $18,863.56
The Fidelity Floating Rate High Income Fund (FFRHX) invests primarily in floating rate loans and other floating rate securities issued by companies with sub-investment grade credit ratings. The fund has a dividend yield of approximately 8%. According to the portfolio screenshots he shared publicly on Reddit, the investor who earned $61,600 a year or $5,130 a month in dividends owned about 25,329 shares of the fund.
Fidelity Select Semiconductors Portfolio
Shares: 1,657.05
Annual income: $2,820.29
Fidelity Select Semiconductors Portfolio (FSELX) invests in companies that design, produce or sell semiconductors. The investor who received approximately $5,130 per month in dividends had 1,657 shares of the fund in his portfolio. The fund’s top holdings include Nvidia, Broadcom, Taiwan Semiconductor and On Semiconductor.
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YieldMax NVDA Option Income Strategy ETF
Shares: 60.15
Annual income: $1,046.63
YieldMax NVDA Option Income Strategy ETF (NYSE:NVDY) makes money by selling call options on Nvidia. Recently, the ETF has gained popularity amid the buzz surrounding Nvidia. The fund has a distribution percentage of approximately 52%. NVDY is suitable for investors who believe in Nvidia’s long-term potential but want to hedge against possible declines in the chipmaker’s stock. The investor who earned $5,130 per month in dividends collected about $1,046 annually from the fund, since he had about 60 NVDY shares in his portfolio.
Prospect Capital Corporation
Shares: 16,990.59
Annual income: $12,233.23
Prospect Capital Corporation (PSEC) is a business development company with a dividend yield of approximately 12%. The stock fell earlier this month when the company announced its first ever dividend cut since 2017. According to the portfolio screenshots he shared publicly, the investor who earned approximately $5,130 per month in dividends had 16,990 shares of the company in his portfolio, earning approximately $5,130 per month in dividends. $12,233 per year.
YieldMax TSLA Options Income Strategy ETF
Shares: 109.33
Annual income: $1,558.23
YieldMax TSLA Option Income Strategy ETF (NYSE:TSLY) is a popular dividend ETF for income investors looking for high returns. With a payout ratio of 53%, TSLY generates income by selling call options on Tesla stock. TSLY is down 37% so far this year.
YieldMax Magnificent 7 Option Income Strategy ETF
Shares: 696.54
Annual income: $7,377.08
YieldMax Magnificent 7 Option Income Strategy ETF (YMAG) generates income by selling call options on the Magnificent Seven stocks: Apple, Microsoft, Amazon, Nvidia, Alphabet, Meta and Tesla. The fund has a distribution percentage of approximately 56% and pays monthly. The investor earning $5,130 monthly in dividends owned 696 fund shares, bringing in $7,377 a year in dividends.
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EquityMultiple’s ‘Alpine Note – Basecamp Series’ attracts attention and opens wallets. This short-term note investment offers investors a 9% yield (APY) with a term of just 3 months and a minimum of $5,000. The Basecamp rate shows a significant spread compared to government bonds. These healthy returns will not last long. With the Fed poised to cut interest rates in the near future, now could be the time to earn favorable returns with a flexible, relatively liquid investment option.
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This article ‘Finally Able to Retire’ – Dividend Investor Makes $5,130 a Month on $622,000 Investment Stock Portfolio: Top 9 Stocks, ETFs originally appeared on Benzinga.com
