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While the fear of missing out on the AI bandwagon keeps investors excited about tech stocks, long-term investors are looking for that sweet spot between stable dividend income and capital gains via stock price appreciation. Last month, during an interview with Bloomberg, Savita Subramanian, head of U.S. equity and quantitative strategy at Bank of America, recommended investors pile into dividend stocks.
"I think you want to be in safe dividends. And I know this is the most boring call of all time, but sometimes boring is good. And you know, when you think about where we are today, we’re in an environment," the analyst said.
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About seven months ago, a dividend investor shared an update on his investing journey on r/Dividends – a discussion board on Reddit with about 600,000 members. According to the portfolio screenshots shared by the investor, he was making $138,000 a year or $11,500 per month, in dividend income. He confirmed these numbers when someone specifically asked him about his income in the comments section.
This investor's portfolio was worth about $2.6 million, giving it a dividend yield of over 6.1%. The dividend portfolio had just seven holdings and 94% of the portfolio was invested in ETFs.
When asked about his investing journey and what he did for a living, the investor said:
"30 years of both my wife and I working engineer jobs and living very frugally, combined with 30 years of investing."
The investor was then asked to elaborate on what he meant by "very frugally." His response gives insight into the patience and long-term commitment needed to achieve a substantial and reliable dividend income like his:
"It’s actually depressing to talk about. We buy clearance food only eat out with a Groupon. My wife is an excellent cook and I am pretty ok myself so we mostly cook at home. We don’t go out and do anything “fun” that most people do. We rarely buy anything for entertainment. Our cars are old but I maintain all of them."
Based on the details shared by the investor publicly, let's examine the top holdings of this high-yield dividend portfolio.
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JPMorgan Equity Premium Income ETF
JPMorgan Equity Premium Income ETF (NYSE:JEPI) was the investor's largest holding, with 10,525 shares. JEPI generates income by investing in large-cap U.S. stocks and selling call options. Some of its top holdings include AbbVie, Nvidia, ServiceNow, Trane Technologies and Progressive Corp. The fund has a dividend yield of over 7%.
JPMorgan Nasdaq Equity Premium Income ETF
According to screenshots shared by the Redditor publicly, about 24.4% of the portfolio, worth over $2.26 million, was allocated to the JPMorgan Nasdaq Equity Premium Income ETF (NASDAQ:JEPQ). JEPQ is another high-yield covered call ETF in the Redditor's portfolio, earning about $21,000 annually in dividends. The ETF invests in Nasdaq companies and generates extra income by selling call options.
Schwab U.S. Dividend Equity ETF
The portfolio screenshots shared by the investor making $138,000 a year or $11,500 per month, in dividends showed Schwab U.S. Dividend Equity ETF (SCHD) as the third biggest position. SCHD 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, among many others. This ETF can be ideal for investors looking for higher returns instead of just dividend income.
Amplify CWP Enhanced Dividend Income ETF
Amplify CWP Enhanced Dividend Income ETF (NYSE:DIVO) was the fourth biggest holding of the Redditor, making $11,500 in monthly dividend income. The ETF generates monthly income by selling covered calls. Some of the top holdings of the ETF include UnitedHealth, JPMorgan, Caterpillar, Home Depot and Procter & Gamble. The ETF has over $3.4 billion in assets and has gained much popularity on Reddit. According to a Redditor who did some backtesting in November 2022, a $10,000 investment in the ETF at its inception in 2016 would have increased to $19,970 vs. $19,614 for SPY with dividends reinvested. As of Oct. 15, the ETF yields about 4.4%.
The Simplify Volatility Premium ETF
The Simplify Volatility Premium ETF (NYSE:SVOL) accounted for about 2.9% of the total portfolio of the Redditor generating $138,000 income per year. The investor had about 1,100 SVOL shares, according to the screenshots he shared. SVOL, which has a yield of about 16%, generates income by shorting the CBOE Volatility Index (VIX) and betting that volatility will remain stable or decrease. Since the broader market tends to go higher in the long term, investing in this ETF suits those looking for stable income checks.
Realty Income
Realty Income Corp (NYSE:O) is perhaps the most popular monthly dividend stock, yielding about 5%. The company has raised its dividends for 30 consecutive years. The Redditor earning $11,500 per month in dividend income had owned just 547 company shares, making up 1.2% of the total portfolio.
Intel
Intel Corp (NASDAQ:INTC) comprised just 0.3% of this high dividend income portfolio. While Intel is a semiconductor giant and yields about 2.2%, the stock is getting clobbered amid Wall Street concerns that it is lagging behind competitors like Nvidia in the AI race. INTC shares have lost 52% of their value so far this year.
Someone poked the investor about Intel. Here was his response (remember, this was seven months ago):
"I have 30+ years in the semiconductor industry. lol, I sold a lot of the holdings around $50."
Better Yields Than Some REITs?
The current interest rate environment has created an incredible opportunity for income-seeking investors to earn massive yields, but not through publicly-traded REITs.
Arrived Homes, the Jeff Bezos-backed investment platform, has launched its Private Credit Fund, which provides access to a pool of short-term loans backed by residential real estate with a target 7% to 9% net annual yield paid to investors monthly. It paid 8.1% in August. The best part? Unlike other private credit funds, this one has a minimum investment of only $100.
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