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Investing in dividend stocks is an effective strategy for securing a reliable income stream during your retirement. A study by Ned Davis Research found that dividend stocks returned a total of about 8.8% per year between 1972 and 2012, compared to just 1.6% for non-dividend stocks.
But which stocks are reliable enough to live entirely on dividends? Let’s look at a case study for ideas.
Last December, someone took a poll on r/Dividends – a Reddit income investor discussion board with 626,000 members – asking if there were any retirees who lived entirely on dividends. The post received over 200 comments with many interesting stories of retirees living off dividend income.
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One investor said he was living “fairly comfortably” on dividends and Social Security. He earned more than $160,000 annually in dividends and had a portfolio return of about 4.5%.
“We have an ever-increasing income stream and a portfolio that is still growing due to appreciation and we are reinvesting about 10% of our dividends,” he said.
When asked what he did for a living, the investor said he and his wife earned an “above average” income.
“We also put three children through college without a loan. I have always taken the advice I received years ago to heart: it doesn’t matter how you earn your money; it’s what you do with it.”
During the discussion, the investor announced his top 20 investments. Let’s explore some of these stocks.
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Pembina Pipeline Corporation (PBA) is a Canadian company that operates transportation and storage infrastructure. The dividend yield is approximately 4.9%, according to Benzinga Pro. The investor, who earned $160,000 a year in dividends, said PBA was one of his largest positions. The stock is up about 18% this year.
Real estate income
Realty Income Corporation (O) is one of the best-known stocks with monthly dividends. The REIT has increased its dividends for 30 years in a row. However, the stock is down 4.5% so far this year. The possibility of tariffs from newly elected President Donald Trump on China is weighing on the stock, as many of the company’s tenants are retailers that import products from China.
Johnson & Johnson
Johnson & Johnson (JNJ) was among the investor’s largest holdings. During the discussion, he made a bull case for the stock:
“I think JNJ has an attractive entry price for new investors. I already have 1,100 shares, so I don’t want them to become too big for my portfolio balance. JNJ’s share price is currently under pressure due to lawsuits. But they are a Mammoth company and will get through this. No court will seriously hurt their business. I’m old enough to remember the Tylenol scare. These things generally offer buying opportunities if you have a long term view and for returns buys.
Over the past year, the stock has lost about 5% of its value.
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Iron Mountain Incorporated (IRM) is a data storage REIT that provides physical storage solutions for records and documents. The customers are large companies with data storage and information management requirements. The company makes money through contracted storage rental rates with long-term agreements. According to Benzinga Pro, it has a dividend yield of 2.42%.
W. P. Carey
The investor who earned $160,000 in annual dividend income said WP Carey Inc. (NYSE:WPC) was among his top holdings. W. P. Carey Inc. is one of the top net lease REITs, managing more than 1,200 properties in the US, Europe and other parts of the world. Retailers, restaurants, car companies and supermarkets are among the REIT’s tenants.
Procter & Gamble
Procter & Gamble Co (NYSE:PG) has raised its dividends for 68 years in a row and has a yield of 2.3%, according to Benzinga Pro. The stock is up about 20% in the past year.
BlackRock
Investment giant BlackRock Inc. (NYSE:BLK) was also part of the retired investor’s portfolio who lived off dividends. BlackRock’s dividend has grown 9.5% annually over the past five years. As of 2023, the company has increased its payouts for 14 consecutive years.
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Entergy Corporation
Electricity generation and distribution company Entergy Corporation (ETR) was among the retired investor’s top holdings living off dividends. Entergy shares are up 50% this year. It recently made headlines after Meta Platforms said it plans to spend $10 billion to build an AI data center in Louisiana. Meta will work with Entergy to power the data center.
Oklahoma-based utility OGE Energy Corp. (OGE) was also part of the portfolio, generating $160,000 in annual dividend income.
IBM
International Business Machines Corporation (IBM) has increased its payouts for 29 years in a row. The stock is up about 45% this year.
Starwood Property Trust Inc. (NYSE:STWD) is a Connecticut-based REIT focused on commercial mortgage lending and equity investments. The dividend yield is approximately 9.6%, according to Benzinga Pro.
Prologis
San Francisco-based REIT Prologis Inc. (NYSE:PLD) has a dividend yield of over 3.3%, according to Benzinga Pro. The Saudi sovereign wealth fund increased its stake in the company by 34.5% to 1.55 million shares in the third quarter.
Lower interest rates mean that some investments won’t return what they have in recent months, but you don’t have to lose those gains. Certain private market real estate investments offer private investors the opportunity to take advantage of these high-yield opportunities.
Arrivald Home’s Private Credit Fund 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 just $100.
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This article Retired Investor Lives on $160,000 in Dividend Stock Portfolio – ‘We Live Quite Comfortably on Dividends’ originally appeared on Benzinga.com
