Dividend investing is roaring back to the limelight as investors flock to attractive income-generating equities following the first rate cut by the Federal Reserve. Financial services company First Trust estimates that dividend-focused ETFs saw inflows worth a whopping $4.5 billion in July and August. The firm said in a report:
"If we had to pick a group that would eventually benefit the most from multiple rate cuts, we would suggest dividend-paying companies. In a market enthralled by expensive momentum stocks, quality, inexpensive dividend stocks are hiding in plain sight."
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But which quality, inexpensive dividend stocks should you pick to increase your wealth? Inspiration and ideas come from those who are doing it right. Let's take a look at an interesting success story.
About two years ago, a Redditor shared his detailed income report and portfolio screenshots on r/Dividends (a community with over 590,000 members on Reddit), saying that he was earning about $110,666 annually or $9,222 per month, in dividend income.
The investor, 60 and from Canada, said he planned to retire in two years. Asked why two years, since his dividend income was enough to retire immediately, the investor responded:
"It takes time to close down a practice (MD) and my youngest is still in University, so that's a last major expense."
Someone asked him for advice or tips. Here's what he said:
"Basically just dca every month 15% of income. (I) didn't really start making over 150,000 a year until 34 years old. So almost all of this has accumulated over the last 25 years. I should have pivoted to dividends earlier as many of my non dividend tech stocks have crashed hard."
The investor said he made about $200,000 after taxes. Answering a question about how many years he'd been accumulating wealth, he said:
"30. I have paid off my house, rec property and three cars."
Let's look at some of the biggest holdings in the portfolio.
Vanguard FTSE Canadian High Dividend Yield Index ETF (VDY.TO)
Vanguard FTSE Canadian High Dividend Yield Index ETF exposes investors to some of the top high-yield Canadian dividend stocks. It tracks the FTSE Canada High Dividend Yield Index. Royal Bank of Canada (RY), Enbridge (ENB) and Toronto-Dominion Bank (TD) are among the fund’s top holdings. This was the biggest holding of the Redditor, earning over $9,000 per month in dividends, accounting for about 8.5% of the total portfolio.
Enbridge
With a dividend yield of 6.6%, Canadian energy infrastructure company Enbridge Inc. (ENB.TO) was the second biggest holding of the Redditor, earning about $9,000 per month in dividends. The stock accounted for about 6.7% of the $3.6 million portfolio. The company has consistently raised its dividends for about three decades now.
Brookfield Asset Management
Brookfield Asset Management Ltd. (BAM.TO) is a Canadian alternative investment management company that focuses on real estate, renewable power, infrastructure, credit and private equity. About 5.8% of the total portfolio of the Redditor making $9,000 per month in dividends was allocated to this company. BAM.TO has a dividend yield of about 3.3%.
Canadian Natural Resources
Canadian Natural Resources Limited (CNQ.TO) was the fourth-biggest holding of Redditor, making $9,000 in dividends a month. The stock offers a dividend yield of over 4% and the company has consistently raised dividends for 24 straight years. About 5.1% of the $3.6 million portfolio of Redditor was allocated to CNQ.
Bank of Montreal (BMO.TO)
Bank of Montreal (BMO.TO) is another top high-yield dividend stock in the investor’s portfolio, raking in over $9,000 per month in dividends. The portfolio screenshots shared by the Redditor publicly showed BMO accounted for 4.5% of the total portfolio. The stock is up 14% over the past year.
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Schwab U.S. Dividend Equity ETF
The Canadian investor earning over $9,000 monthly had about 4.1% of his total $3.6 million portfolio invested in Schwab U.S. Dividend Equity ETF SCHD. The ETF tracks the Dow Jones U.S. Dividend 100 Index and exposes you 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. Since SCHD's holdings are mostly conservative dividend payers, it's suitable for investors close to retirement looking for consistent dividend income.
However, the investor noted a caveat of investing in SCHD for Canadian investors during the discussion:
"But the real issue with JEPI SCHD and similar is that if you hold them in Canada, you get 15% less dividend and are taxed differently on non-Canadian dividend products. If you are in the U.S., it's more of a no-brainer when you reach retirement."
Tourmaline Oil Corp.
Canadian natural gas company Tourmaline Oil Corp. (TOU.TO) was among Redditor’s top 10 holdings, earning $9,000 per month in dividends. When asked what stocks he thought were the best for his income portfolio, the investor said TOU stood out because of its special dividends.
Microsoft
About 3.4% of Redditor’s portfolio was invested in Microsoft Corp MSFT. The company recently raised its quarterly dividend by 10%. It offers a sweet spot between dividend income and capital gains through stock price appreciation. MSFT is up 30% over the past 12 months.
Broadcom
Broadcom Inc AVGO usually gets attention for its AI chips instead of dividends. However, the company has a strong dividend growth track record, having raised its annual dividend for 13 consecutive years. AVGO has a dividend yield of 1.2%.
Wondering if your investments can get you to a $5,000,000 nest egg? Speak to a financial advisor today. SmartAsset’s free tool matches you up with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you.
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