Markets are wavering as chances of further rate cuts this year are dimming due to labor market strengths and elevated inflation. The impact of new trade policies under the upcoming Trump administration could further increase uncertainty in the days ahead. As investors brace for a choppy ride and pile into stable assets, dividend stocks are back in focus.
About six months ago, someone asked dividend investors on r/Dividends – a community on Reddit with over 650,000 members, whether anyone was living off dividends and how much investment was required to reach this milestone. Income investors poured in with an overwhelming response, sharing their success stories and portfolio strategies.
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An investor said he was living off his dividend income and was ready to collect over $5,000 in monthly dividends on an initial investment of about $320,000.
"I am retired and live off mine, but I am not your conventional investor. My monthly dividend income at the end of this month will be over $5,000 on an initial investment of $320K that is now worth $382K, not counting dividends."
The investor supported investing in closed-end funds and he said he does not care much about high expense ratios of funds while investing. Here is how he explained his rationale when someone pointed out the high expense ratios of many of his investments:
"Right, like I care what expense ratios are when I have made so much money on dividends and on the increase in the share price. Then again, I have been off and on in some of these names for 10+ years. But I get it; you look at expense ratios while I don’t."
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The investor said only 25% of his funds were invested in the market, while the rest went to fixed-income investments, including municipal bonds, closed-end funds and money market funds.
Let's take a look at some of the names he was holding.
Cornerstone Total Return Fund
The Cornerstone Total Return Fund (CRF) is a closed-end investment company that targets capital appreciation and income generation. It has a dividend yield of 16% and pays monthly. The investor said CRF is one of the funds allowing investors to reinvest their dividends at the fund’s net asset value (NAV).
PIMCO Dynamic Income Fund
The PIMCO Dynamic Income Fund (PDI) invests in fixed-income securities to generate income and appreciate capital. It focuses on mortgage-backed securities, investment-grade and high-yield corporate and sovereign bonds from developed and emerging markets.
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Oxford Lane Capital
Oxford Lane Capital (OXLC) is a closed-end fund that focuses on fixed-income securities. The fund pays a dividend of about 20% monthly.
The investor was a fan of Oxford Lane Capital's dividend increases and discussed this investment at length during the discussion on his post.
"Gotta love that divy increase with OXLC, especially at a time when various dividend payers are lowering their divy," he added.
Cornerstone Strategic Value Fund
The Cornerstone Strategic Value Fund (CLM) is a closed-end management investment company that seeks capital appreciation through investment in U.S. and non-U.S. stocks.
Guggenheim Strategic Opportunities Fund
Guggenheim Strategic Opportunities Fund (GOF) was in the investor’s portfolio who collected over $5,000 per month in dividend income. GOF provides investors with exposure to fixed-income and other debt securities. It invests in various credit instruments, including corporate bonds, asset-backed securities, mortgage-backed securities and other high-yield debt.
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