Early Retiree in 50s Living Off Dividends Shares His Top 7 Stock Picks — 'I Make Sure to Diversify for Risk'

Markets are headed for more volatility amid President Donald Trump's tariffs on Canada, China and Mexico and the potential response from the three countries. Investors are expected to turn to dividend stocks to offset uncertainty in the coming months. A T. Rowe Price report shared data that shows that from 1985 through 2019, dividend growth stocks outperformed non-dividend stocks even down markets.

But which dividend stocks are suitable for reliable income generation? Let's turn to a case study for ideas.

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About a year ago, someone asked dividend investors on r/Dividends — a Reddit discussion board with over 650,000 members — whether any retirees were living off dividend income. The question received about 250 comments, with many experienced investors and retirees sharing their success stories.

An investor said he retired early and was living off his dividend income. His portfolio yield was about 6%.

"Have not sold a share since retiring 2 yrs ago. Just adding," he said at the time.

The investor said he was in his 50s and was using the "4% rule" to reinvest his dividend income. However, he refused to mention the exact dividend income figure he was raking in when asked during the discussion:

"I'll just say my income side goal is 30000 total shares of JEPI and JEPQ by time I take SS at 62."

The investor also talked about managing portfolios for tax efficiencies and diversification:

"I make sure to diversify for risk, but also to make sure I have some income for tax purposes. I have 10 holdings in taxable and 5 in IRA. All produce distributions or dividends."

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Let's take a look at some of the key dividend stocks and funds in this investor's portfolio based on his recent comments on the social media platform. 

NEOS S&P 500 High Income ETF 

NEOS S&P 500 High Income ETF SPYI was one of the funds in the portfolio of the retired investor living off dividend income. He recently advised an investor on Reddit who was thinking about putting $1 million into SPYI:

"If you put everything in SPYI, you might find that at tax time you have minimal income due to the 60/40 1256 treatment coupled with ROC. You might not be eligible for the ACA and might be forced into Medicaid."

NEOS S&P 500 High Income ETF is a high-yield covered call ETF that pays monthly dividend income. It invests in some of the top S&P 500 companies and generates extra income by selling call options on stocks, generating extra premium income for shareholders. SPYI has a dividend yield of over 12%.

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NEOS Nasdaq-100 High Income ETF

NEOS Nasdaq-100 High Income ETF QQQI exposes investors to Nasdaq 100 companies and generates income by selling covered call options on the index. It pays a monthly income and has a yield of about 13.9%. 

The NEOS Russell 2000 High-Income ETF 

The NEOS Russell 2000 High Income ETF IWMI generates monthly income by investing in the Russell 2000 Index and implementing a call option strategy. It pays monthly and has a distribution rate of 14%. 

JPMorgan Equity Premium Income ETF 

JPMorgan Equity Premium Income ETF JEPI has become a no-brainer investment among Redditors looking to invest in dividend ETFs for the long term. JEPI makes money by investing in some of the most notable large-cap U.S. stocks and selling call options. JEPI is ideal for those looking for exposure to defensive stocks. JEPI usually underperforms during bull markets but protects investors against huge losses during bear markets, as most of its portfolio consists of large, defensive equities like Trane Technologies PLC TT, Southern Co SO, Progressive Corp PGR, among many others.

The fund pays a monthly dividend and yields about 7%.

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JPMorgan Nasdaq Equity Premium Income ETF 

JPMorgan Nasdaq Equity Premium Income ETF JEPQ is a high-yield covered call ETF that distributes monthly dividend income. The ETF invests in Nasdaq companies and generates extra income by selling call options. The fund has a dividend yield of more than 9%. 

The Putnam BDC Income ETF 

The Putnam BDC Income ETF PBDC invests in business development companies. Some of the top holdings of the fund include Ares Capital ARCC, Blue Owl Capital OBDC, Main Street Capital MAIN, Golub Capital BDC GBDC and FS KKR Capital FSK. The fund yields more than 8%. 

Alerian MLP ETF

The Alterian MLP ETF AMLP gives investors exposure to energy infrastructure Master Limited Partnerships (MLPs). Plains All American Pipeline PAA, MPLX MPLX,  Energy Transfer ET, Western Midstream Partners WES, and Enterprise Products Partners EPD are among the top holdings of the fund.

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