Can You Really Retire on Dividends? Here’s a Start…

It was a login like any other.

But as I checked my bank account last Thursday, I was surprised to see that the balance had unexpectedly increased.

A closer look revealed that the IRS had deposited the latest $1,400 stimulus payment.

Not just money… free money!

To be honest, I didn’t know they had my bank details on file.

For many folks, though, these payments sadly aren’t just a free bit of extra disposable income on top of an existing paycheck. The money is vital for basics like rent/mortgage, food, or bills.

But if you’re in a position where you can deploy the cash in the stock market, here are a few ideas where you can grab some extra income and growth.

Want to Buy This Big 10? It’ll Cost You

“Yes, You Can Retire on Dividends. Ten Stocks to Build an Income Stream for the Long Term.”

That was the headline for a Barron’s article last week.

It’s a hefty, well-researched piece, with a self-explanatory title. And it’s true that dividend stocks are well-known for significantly outperforming non-dividend stocks over many years.

But given the stocks mentioned in its example dividend portfolio for retirees – AT&T (NYSE: T), Coca-Cola (NYSE: KO), Consolidated Edison (NYSE: ED), IBM (NYSE: IBM), Johnson & Johnson (NYSE: JNJ), Kellogg (NYSE: K), Proctor & Gamble (NYSE: PG), SL Green Realty (NYSE: SLG), US Bancorp (NYSE: USB), and Verizon Communications (NYSE: VZ) – it left me questioning whether it’s really possible.

[Warning: New Fed Policy to Impact 9,500 Stocks]

After all, you’d need an equally hefty chunk of money to buy enough shares in those companies in order to pocket worthwhile dividend income from them. Not everyone has that kind of cash sitting around.

The article quotes Katherine Roy, chief retirement strategist at JP Morgan Asset Management: “I see so many more advisors building diversified portfolios that are oriented towards income, but they’re looking for that growth potential, as well.”

The keywords there?

“Diversified portfolios” and “growth potential.”

So let’s go for a bit of both…

Your One-Stop Dividend Shop

Just as you should have a balanced diet, dividend stocks should form part of a balanced, diversified portfolio.

And if you want to diversify even further, exchange-traded funds (ETFs) are a quick and easy way to do it.

Rather than trawling through individual companies, buying a basket of stocks in an ETF with one transaction is much simpler and cheaper. You immediately get diversification, flexibility, and a greater margin of safety, since strong performers offset weaker ones.

Here are a few options…

[Exposed: These Are The Worst Stocks of 2021?]

~ SPDR Portfolio S&P 500 High Dividend ETF (SPYD)

Let’s kick off with a big kahuna. As the name suggests, this ETF chases high dividends from large-cap companies within the S&P 500. It does so by tracking the S&P 500 High Dividend Index and takes equal positions in 80 stocks within it.

Collectively, these stocks have performed impressively for the ETF, with a total return of almost 44% over the past 12 months. The stock is also up 19.5% year-to-date. And the current yield of 4.4% smashes the average of around 1.5% for the overall S&P 500.

With almost $2.8 billion in net assets, it’s a popular pick, with an average 1.3 million shares trading per day. So liquidity is no problem. Oh, and the expense ratio is a miniscule 0.07%.

~ Invesco S&P 500 High Dividend Low Volatility ETF (SPHD)

Receiving regular quarterly dividends is cool and all… but what if you want your payments delivered monthly?

And what if you want those payments from a fund whose M.O. is to provide high dividends with low volatility? (The clue is in its name!)

With that in mind, you won’t be surprised to see SPHD spread its 50 holdings across multiple sectors, but with a higher weighting in ultra-reliable utilities and consumer staples – 18% and 15%, respectively. However, technology and energy also chip in with 10% and 9%.

Those stocks have notched a 15.8% total return for the fund in 2021 and an even more impressive 50.8% gain over the past 12 months. It sports a 4.6% yield and you’ll pocket $0.15 per share in dividends each month. The expense ratio is just 0.3%, too.

~ iShares International Select Dividend ETF (IDV)

In the spirit of not having all your eggs in one basket, how about you take them to a basket in another region entirely?

That’s what this fund offers. And actually, make that four regions. IDV tracks the performance of the Dow Jones EPAC Select Dividend Index, which contains high-yielding dividend stocks in EPAC – Europe, the Pacific, Asia, and Canada.

Companies in financial services, utilities, and basic materials account for around two-thirds of the holdings. But the remainder is well-diversified across other sectors.

Investors have plowed almost $4 billion into the fund, which boasts a strong 5.2% dividend yield and delivered $1.61 per share in 2020.

[Alert: Most investors are not aware of what this will mean for their investments]

Ultimately, I’m skeptical whether you can rely solely on dividend payments to see you through retirement. But you should certainly add dividend stocks (or ETFs) to an existing portfolio to give you the dual combo of both extra income and capital appreciation.

Martin Denholm

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About the Editor

How do you know when you’re officially old? One way is by working in an industry for (deep breath) two decades. That’s what I have in financial publishing – as a managing editor, investment analyst, stock-picker, and all-round foot soldier on various e-letters, newsletters, and trading services.

At Breakthrough Investor, I’ll continue the tradition by bringing you the best investment opportunities across a host of sectors and industries and alerting you to today’s most profitable market trends.

One more thing: I’m from Southampton, England. After graduating from Brunel University in London, I decided to say cheerio to Queen and country and ship out to America. I guess I like it, as I’m a permanent resident now. But don’t worry… I’ll try not to chuck any weird English slang your way, or sound like I’m in Downton Abbey.

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