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Can you live entirely off dividends? This question piques the interest of millions of young Americans thinking about early retirement and breaking free of their 9-to-5 jobs.
A few days ago, someone on r/Dividends – a Reddit discussion board related to dividend investing – asked if anyone on the forum is living off dividends.
"I'm yet to hear testimony of someone who's actually made it to a point where they are living off their dividends. If you're out there, could you share your story? What's it like being free? How long have you invested?" the post said.
The question received an outpouring of responses, with many investors sharing their personal stories and advice. One response stood out and got our attention.
An investor, who said he is 58 and retired, responded to the questioner that he's been living off dividends for about three years.
"I started investing about 37 years ago. Retirement off dividends is nice but not really any different from living off any other source of income such as social security. I saved and invested pretty well over the years. I never focused on dividends until the last five years or so. I also don’t suggest young people do so," he said.
The investor shared how he was able to increase his wealth via investing, leading to his retirement:
"My big break was being mostly cash in early 2020 because I felt the market had gotten too expensive. That was largely luck but it worked great. March 2020 was really fun. I spent between $1-2M on stocks in about 30 days and the resulting market rise after that secured my retirement."
The investor reiterated that young investors should focus on total returns instead of solely dividend income.
"I am not a boglehead nor anti-dividend. I simply say that until you are closing in on needing income to live off, focus on total returns. But don’t interpret that as growth only. Dividends are fine, you simply don’t have to do them until later," he added.
The investor was requested to share his portfolio details. He shared many stock and ETF names "from memory," saying his portfolio yield is about 8%.
AbbVie
According to the portfolio details he shared, AbbVie Inc (NYSE:ABBV) was one of the stocks in the portfolio of the 58-year-old investor living off dividends. AbbVie has a dividend yield of 3% and about 50 years of consecutive dividend increases. The stock has gained about 42% over the past year.
Altria
Altria Group Inc (NYSE:MO) has a dividend yield of about 8% with over 50 years of consecutive dividend increases. Altria Group Inc (NYSE:MO) jumped recently after the company reported third quarter results ahead of Wall Street expectations.
Realty Income
With about 30 consecutive years of dividend increases and a 5% yield, Realty Income Corp (NYSE:O) is one of the most popular monthly dividend stocks among income investors on Reddit. The 58-year-old retiree living off dividends said the REIT was part of his portfolio.
Check It Out:
While Realty Income is undoubtedly a solid choice for investors seeking consistent monthly dividend income, it's important to remember that publicly traded stocks are subject to market volatility. For those looking to diversify their income streams and potentially reduce exposure to market fluctuations, real estate investing through platforms like Arrived is worth considering.
Investment giant BlackRock Inc. (NYSE:BLK) was also part of the portfolio of a retired investor living off dividends. BlackRock's dividend has seen a 9.5% rise annually over the past five years. As of 2023, the company has increased its payouts for 14 straight years.
PepsiCo
PepsiCo Inc. (NASDAQ:PEP) is among the safest and most reliable dividend stocks trading in the market, with more than 50 consecutive years of payout increases. However, PepsiCo Inc. (NASDAQ:PEP) recently reported mixed third quarter results and decreased its organic sales growth outlook for 2024.
Target
Yet another dividend king in the list, Target Corp (NYSE:TGT) has raised its payouts for over 50 years without a break and yields 3%. It was a notable stock in the portfolio of the 58-year-old retiree living off dividends.
Procter & Gamble
Procter & Gamble Co (NYSE:PG) has raised its dividends for 68 consecutive years and has a yield of 2.42%. The stock is up about 10% over the past year.
With a dividend yield of about 8%, Energy Transfer LP (NYSE:ET) is a popular dividend stock on Reddit. The company is relatively insulated from the volatile commodities market since its revenue comes from fee-based contracts. It was part of the portfolio of an investor who lived off dividends.
Schwab U.S. Dividend Equity ETF
The 58-year-old retired dividend investor said he had about 3,500 shares of Schwab U.S. Dividend Equity ETF (NYSE:SCHD) in his portfolio. The ETF tracks the Dow Jones U.S. Dividend 100 Index and exposes investors to some of the top dividend stocks trading in the U.S., including Home Depot, Coca-Cola, Verizon, Lockheed Martin, Pepsi and AbbVie. Since SCHD's holdings are mostly conservative dividend payers, it's suitable for investors close to retirement looking for consistent dividend income.
JPMorgan Nasdaq Equity Premium Income ETF
The 58-year-old investor living off dividends said he had 8,500 JPMorgan Nasdaq Equity Premium Income ETF (NASDAQ:JEPQ) shares in his portfolio. JEPQ is a high-yield covered call ETF that distributes monthly dividend income. The ETF invests in Nasdaq companies and generates extra income by selling call options. It yields about 9%.
The Virtus InfraCap U.S. Preferred Stock ETF
The Virtus InfraCap U.S. Preferred Stock ETF (NYSE:PFFA) targets income generation and capital appreciation by investing in U.S. stocks with over $100 million market caps. The fund uses about 20% to 30% leverage to boost income potential. PFFA has a dividend yield of about 8.8%. The investor said he owned about 2,000 shares of the fund.
Hercules Capital
Hercules Capital Inc. (NYSE:HTGC) is a business development company with a dividend yield of over 9%. The investor living off dividends had 2,000 company shares in his portfolio. Hercules Capital has more than a decade of consistent dividend growth. Since 2019, the company has paid 16 special dividends. The company provides high-yield venture debt to early-stage biotech and software companies. Historically, Hercules' company selection has been solid, with a very low rate of defaults.
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