Many dream of retiring early, but making it a reality requires careful planning, especially when you want to rely on investment income.
For those who aim to leave the workforce ahead of schedule, a dividend-oriented portfolio is a great strategy as it provides a steady cash flow. Balancing the yield and risk is crucial, though, to enjoy the investment.
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One Reddit user, an investor with a $640,000 portfolio, is encountering this issue as he plans to retire in five years or less. Heavily invested in Schwab U.S. Dividend Equity ETF (NYSE:SCHD) with smaller positions in Amplify CWP Enhanced Dividend Income ETF (NYSE:DIVO), Amplify CWP International Enhanced Dividend Income ETF (NYSE:IDVO), and Amplify CWP Growth & Income ETF (NYSE:QDVO), the poster’s portfolio generates $27,162 in annual dividend income.
His goal is to build a portfolio that provides inflation-beating dividend growth, but he’s wondering whether he diversified enough, whether he should introduce bonds when nearing retirement, and whether the current allocation can generate $75,000 per year.
“I try to live modestly. I live in a small house. No mortgage. No debt. My current nominal expenses are about $45,000 per year. I'm thinking about diversifying into [Schwab International Dividend Equity ETF (NYSE: SCHY)] to get a little more international exposure,” he wrote.
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The Reddit community weighed in, offering advice and insights, so let’s analyze the suggestions below.
Can The Current $640,000 Portfolio Generate $75,000 Per Year in Dividends? Reddit Debates
Increase Yield with Higher-Paying ETFs And Stocks
Several users suggested adding higher-yielding assets to boost income, mainly since the investor’s 4.24% yield may not cover his $75,000 target.
“Try getting more yield exposure. [Broadcom (NASDAQ: AVGO)], [Nike (NYSE: NKE)], [Visa (NYSE: V)], [The Home Depot (NYSE: HD)]–all have high 5-year [compound annual growth rate]. Yield: [MPLX LP (NYSE: MPLX)], [JPMorgan Nasdaq Equity Premium Income ETF (NASDAQ: JEPQ)], [Guggenheim Strategic Opportunities Fund (NYSE: GOF)], [Ares Capital Corporation (NASDAQ: ARCC)], [VICI Properties (NYSE: VICI)], [PIMCO Dynamic Income Fund (NYSE: PDI)],” a suggestion reads.
A Redditor advised the investor to allocate two parts of the portfolio to a covered call ETF and a high-yield fund since they pay well and the gains are great.
“Add JEPQ and [Goldman Sachs S&P 500 Core Premium Income ETF (NASDAQ: GPIX)]. You will have good gains from those and they pay a lot.”
A commenter suggested Ares Dynamic Credit Allocation Fund (NYSE:ARDC), a business development company because it offers nearly double the yield of SCHD.
“ARDC is a monthly payer, now at a good entry point at $14.14-ish with a 9.9% dividend, currently paying $0.1125/share monthly. Just went x-dividend. I hold 5,000 shares of ARCC (for several years) and 5,000 shares of ARDC (a more recent position),” he said.
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Focus on Dividend Growth and Compounding
Many Redditors suggested that dividend growth stocks and ETFs are ideal for long-term retirement income, with many sharing what they do to ensure compounding growth for their portfolios.
“A well-diversified dividend portfolio with a disciplined reinvestment rate should be easily able to weather most storms. And you become a net buyer of shares every year, not a seller. That $640,000 could easily and safely do 8.5% gross and provide a 25% reinvestment rate and still net $40,000/year. I’m living it,” a Reddit user said.
“Nice and consistent portfolio. SCHD, DIVO, and IDVO are very consistent in growth and dividends. Don't know much about QDVO, but I am sure if it's similar to DIVO it's a good pick. I like your portfolio!” another commenter wrote.
A retiree shared that his income from dividend-focused shares continued to pour even during market corrections and that he’s reinvesting part of his distributions, growing his wealth year after year.
“My dividend income didn’t miss a beat during corrections in 2022, etc. Since I retired 15 years ago, I never sold shares except to rebalance. I reinvest part of my distributions during dips, like now, resulting in my portfolio being over twice what it was when I retired,” he said.
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