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Investing in quality dividend stocks and letting your wealth increase despite short-term market volatility can do wonders over the long run. Data shows that dividends and reinvested dividends accounted for over 80% of the cumulative total return of the S&P 500 Index from 1960 through 2023.
But which dividend stocks can help you achieve a significant monthly income? Let’s turn to a case story for ideas.
Last month, an investor on r/Dividends — a Reddit community with over 650,000 members — said that he set up a dividend portfolio that generated about $5,000 a month.
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“I set up this portfolio for my wife so she can quit her job and maintain cashflow. The good news is that this income stream will pay no FICA tax and significant part of the distributions will not be taxed,” he said.
The portfolio screenshots shared by the investor showed his monthly dividend income stood at about $5,100 and his total portfolio worth was just over $632,000.
“I’m in my 50s and have several million in liquid investments. This portfolio for my wife is one of many I manage for our household,” he added.
Asked how was he able to accumulate wealth, the investor said he had a mechanical engineering degree and later moved to management consulting after getting an MBA.
“I have been saving and investing since 2000. After a couple of decades money multiplies in surprising ways. Besides the ME degree, I also have an MBA that turbocharged my earnings.”
The investor said the dividend income from this portfolio was consistent so far but he planned to reinvest about 20% of it to reduce risk.
“It takes time to get there but it’s doable.”
Let’s take a look at some of the key holdings in this portfolio.
The SPDR S&P 500 ETF Trust
Number of Shares: 3,658
The SPDR S&P 500 ETF Trust (NYSE:SPY) is one of the best ways to gain exposure to the broader US market as well as earn dividends. The fund pays quarterly and yields about 1.2%.
The investor generating over $5,000 per month in dividend income had 3,658 shares of SPY in his portfolio.
Global X Nasdaq 100 Covered Call ETF
Number of Shares: 5,203
Global X Nasdaq 100 Covered Call ETF (NASDAQ:QYLD) is a notable ETF that earns money by selling covered call options on the Nasdaq-100 Index. The fund was started in 2013 and has since paid monthly income to investors. It yields about 12%.
The Liberty All-Star Equity Fund (NYSE:USA) is a closed-end fund (CEF) that seeks capital appreciation and income generation by investing mostly in large-cap stocks. The fund pays quarterly and yields about 9.5%.
Putnam BDC Income ETF
Number of Shares: 2,778
The Putnam BDC Income ETF (NYSE:PBDC) provides investors exposure to business development companies. PBDC yields about 9%. The fund is up 12% over the past year.
VanEck BDC Income ETF
Number of Shares: 3,813
Another ETF focused on business development companies, the VanEck BDC Income ETF (NYSE:BIZD) tracks the MVIS US Business Development Companies Index. The fund gives you exposure to top BDCs that are famous for their high dividend income. The investor raking in over $5,000 a month in dividends had 3,813 BIZD shares in his portfolio.
The Virtus InfraCap U.S. Preferred Stock ETF (NYSE:PFFA) targets income generation and capital appreciation by investing in U.S. stocks with over $100 million market caps. The fund uses about 20% to 30% leverage to boost income potential. PFFA has a dividend yield of about 9%.
Fidelity Government Money Market Fund
Number of Shares: 3180
The Fidelity Government Money Market Fund (NASDAQ:SPAXX) is a money market fund that invests in US treasury securities, government agency securities, and repurchase agreements backed by government securities.
A Redditor asked the investor about SPAXX. Here is what he said in response:
“This is a money market fund where I park the cash for the portfolio (the sweep fund).”
