Dividend investing took a backseat when investors started focusing on tech growth stocks amid the AI boom following the launch of ChatGPT. However, the inflation crisis and volatility in AI stocks have put income stocks back on investors' radar. JPMorgan said in a recent report that dividend payouts are recovering as big tech companies mature. Global dividend growth has outpaced earnings growth in seven of the last eight quarters, according to the bank's analysis.
A few days ago, someone asked r/Dividends — a Reddit community with over 650,000 members — how much investors in the community were making per month from their dividend stocks. The question received hundreds of comments with many interesting income reports and stories. One particular comment caught our eye.
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An investor, 61, said he was making $130,000 in dividend income and interest. He retired at the age of 54 and built wealth by focusing on growth stocks in his early years.
"Dividends are a result of growth typically in mature companies. They are not wealth builders. Let me repeat this. Growth is the driver. Dividends are merely a transfer of company earnings to your pocket book. Your cash goes up and company stock goes down. That is a net ZERO transaction. You don't see the drop as dividend isn't big and masked by all the other transactions. Furthermore the stock recovers and goes higher if there is growth," he said.
The investor said his biggest goal is "preservation of capital" while earning passive income from dividends and interest was his secondary objective. He also warned young investors not to give in to the fear of recessions and stay invested in stocks.
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"My biggest mistakes in hindsight is selling some stocks and holding cash a couple times expecting downturn. Note I always remained about 70% in equities at low point, which is now. Market moves up most of the time, but there are events that crush values. Thing is to stay in. If you get out then it becomes harder to get conviction to get back in and investors miss the run up," he said in a comment on a separate discussion on Reddit about a year ago.
Let's take a look at some of the key dividend stocks in the investor's portfolio.
Schwab Value Advantage Money Fund
The Schwab Value Advantage Money Fund SWVXX was among the biggest holdings of the investor collecting $130,000 in dividends and interest annually.
"Young is when you go aggressive with strong growth companies. SWVXX is retirement or just holding cash to put into use when you think is all clear. You can't get emotional. They go up and down. If you can't stay level headed on the down don't invest," he said in a comment about a year ago while advising a young investor on Reddit.
The fund is suitable for those looking for a stable, secure place to park their cash. It has total assets of about $220 billion and yields over 4%.
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Ares Capital Corporation
With a dividend yield of over 8%, business development company Ares Capital Corporation ARCC was among the top high-yield stocks in the portfolio.
Over the past year, the stock is up 13%.
Prudential Financial
Prudential Financial Inc. PRU is a financial services company offering insurance and investment management products. The stock has a dividend yield of 4.2%. In November, Evercore’s Thomas Gallagher said that while most life insurance companies would benefit under the Trump administration, those with significant non-US businesses like Prudential Financial, among others, could be negatively impacted amid a stronger dollar.
Blue Owl Capital
Blue Owl Capital Corp. OBDC is a business development company. Recently, the company's shareholders approved all proposals related to its merger with Blue Owl Capital Corp. III OBDE.
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AbbVie
AbbVie ABBV has increased its dividends without a break for over 50 years. According to Benzinga Pro, the stock yields about 3.7%. In December, BofA started covering AbbVie with a Neutral rating and a $191 price target.
Meta Platforms
Meta Platforms META was a low-yield dividend stock in the portfolio. The investor said he had several growth stocks in his portfolio, including Meta, even during his retirement because "preservation of capital" was his goal.
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