While everyone is undergoing FOMO over the AI bandwagon, many investors seek to balance their portfolios by adding reliable dividend stocks. In January, Josh Duitz, Abrdn’s deputy head of global equities, predicted that dividend stocks would play a key role this year. Talking to CNBC, the analyst said that since 1936, dividend stocks have accounted for about 36% of the total market returns. He believed dividends would outperform even if we had a recession.
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But which dividend stocks to buy for sustainable long-term income? Let's take ideas from a success story.
About three years ago, an investor shared his detailed income report on r/Dividends, a vibrant Reddit community of 600,000 members. The investor, who said he was 42, shared that his total investment portfolio was worth about $500,000, spanning his Roth and taxable accounts.
"This is not counting 401(k) which is around $1M, all in Vanguard index funds," he added.
The investor also shared his plans and goals for his investing journey and asked for feedback from fellow investors:
"Growing/dripping everything for now. I am hoping to be able to start using dividends from all but ROTH in about 10 years as extra supplemental income, depending on market of course. At some point will also start shifting VTSAX into higher yield but I figured if I have about 10 years I might let it sit and grow for a while."
He also said he had about $300,000 in cash as a safety net because he was a "scaredy cat." Many urged the investor to put this money to work too and avoid keeping so much in cash. Some curious Redditors also asked him what he did for a living.
"Used to work in finance. Semiretired now with part-time consulting. Spouse works," he replied.
The investor also explained part of the reason why he had so much cash:
"Married. One child – preteen who goes to a private school. Live in Chicago, so quite expensive cost of living. Stupid expensive really, but that's our fault. That's partially why I have so much in cash – school/housing are quite hefty."
The investor was generous enough to share his stock holdings and tell everyone how much he made from each stock annually in dividends. Let's look at some of the most important stocks and funds in his portfolio.
Vanguard Total Stock Market Index Fund Admiral Shares
Vanguard Total Stock Market Index Fund Admiral Shares VTSAX provides investors with exposure to the entire U.S. stock market, including small, mid and large-cap stocks. Its portfolio consists of more than 3,600 stocks. The fund pays quarterly dividends and yields about 1.2%.
VTSAX accounted for the biggest chunk of dividend income for the Redditor, raking in about $3,615 annually, according to the details shared by the investor publicly. The investor said more than once during the discussion on his report that he has over half his money invested in the fund.
"I am trying to have around $25k-$30k in each stock. VTSAX is different – almost half all money is in it. That is main reason my yield is lower," he said.
Coca-Cola
Coca-Cola Co KO was among the Redditor’s top dividend stock picks, earning about $1,000 per month in dividends. He said KO shares brought about $672 in annual dividend income. Coca-Cola has raised its dividends for 62 consecutive years. Oracle of Omaha Warren Buffett has a $25.5 billion stake in the beverage giant as of the end of the June quarter.
Bristol-Myers Squibb
Pharma company Bristol-Myers Squibb Co BMY has a dividend yield of about 4.5% and has raised its payouts for 15 straight years. The investor making $1,000 monthly in dividend income said he collected about $625 from BMY annually.
Suncor Energy
Canadian energy company Suncor Energy Inc SU accounted for about $683 in annual dividend income for the investor who shared his detailed income report. The stock has a dividend yield of about 4%.
See Also: Warren Buffett once said, "If you don't find a way to make money while you sleep, you will work until you die." Here’s how you can earn passive income with just $100.
Citigroup
With a dividend yield of about 3.5%, Citigroup Inc C is a notable bank dividend stock in the investor’s portfolio making about $12,000 per year. Earlier this month Citigroup posted strong third-quarter results. EPS in the quarter came in at $1.51, beating estimates by $0.20. Revenue of $20.32 billion was also ahead of Wall Street estimates by about $500 million.
The Redditor said he collected about $714 in dividend income from his investment in Citigroup.
Verizon Communications
According to the details he shared in his income report, Verizon Communications Inc. VZ brought in about $1,224 a year in dividend income for the Redditor. Verizon has a dividend yield of about 6.5%.
Visa
With a dividend yield of less than 1%, Visa Inc V allows investors a sweet spot to enjoy both dividend income and capital gains through stock price appreciation. The payment giant's shares have grown about 60% over the past five years. The company has raised its dividend payouts for 15 consecutive years. Visa accounted for just $166 of the investor’s $12,000 annual dividend income.
Talking about Visa, the investor said:
"Visa (V) has a very low dividend (under 1%), but it is growing by 20% each year. And I think V has more growth potential than some other high-doc stocks."
Realty Income
Realty Income Corp O is among retail investors’ top favorite real estate dividend stocks on Reddit. One investor who makes $12,000 per year in dividends said Realty Income was part of his Roth IRA account and generated about $814 in annual income. Realty Income has a dividend yield of over 5% and pays monthly dividends. The stock is up about 30% over the past year.
Ares Capital
Business development and investment company Ares Capital Corporation ARCC is a high-yield dividend stock in the investor’s portfolio making about $12,000 in annual dividend income. He made about $2,697, part of his Roth IRA account, from the stock. During the discussion, the Redditor asked for advice from fellow investors:
"I have ARCC and O in Roth due to unqualified dividends, so would prefer to keep them as is but not sure if that's the right approach."
ARCC has a dividend yield of about 8.8%.
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