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Millions of young Americans are forging unconventional paths to early retirement amid a growing desire for financial freedom and greater flexibility in spending their time. Data from the Federal Reserve Bank of New York shows that the percentage of people willing to work full-time after age 62 fell to 45.8% in March, compared to 55% in March 2014.
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How are young investors using dividend investing for early retirement? Let’s examine a case study.
Last month, an investor shared his detailed income report with portfolio screenshots on r/dividends, a discussion board for income investors on Reddit with 618,000 members. He said he reached about $61,600 in annual dividend income or $5,130 per month and was “finally able to retire.”
“There will come a day when I can put these distributions to good use. For now, we are just reinvesting,” he added.
The investor’s portfolio showed most of his money was in risky, high-yield YIELDMAX ETFs that generate money by selling call options. Redditors quickly reminded the investor about how risky his investments were and why he could end up in losses during his retirement. However, the investor sounded self-assured, saying he was doing “not too bad right now.”
“Waiting till the end of 2024 to see where it’s at,” he responded to a commenter who warned him that his principal was at risk of going to “zero.”
According to the screenshots shared by the investor, his total portfolio dividend yield was 9.89%. Since his annual dividend income is $61,600, his total portfolio value was roughly over $622,000.
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Let’s take a look at the stocks and funds in the portfolio.
Aberdeen Income Credit Strategies Fund
Shares: 7,364.77
Annual Income: $8,837.73
Aberdeen Income Credit Strategies Fund (ACP) is a closed-ended fund that generates income by investing in loan and debt instruments. It is risky because ACP invests at least 80% of its managed assets in a mix of senior loans, including below-investment-grade or “junk” securities. The fund has a distribution rate of approximately 18%.
YieldMax AI Option Income Strategy ETF
Shares: 143.90
Annual Income: $750.95
YieldMax AI Option Income Strategy ETF (AIYY) generates income by selling call options on AI-related stocks or indexes. The fund has a distribution rate of 108%. Its secondary objective is to seek share price growth by tracking C3.ai, whose shares are down 7.6% this year, while AIYY is down 55%.
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Fidelity Capital and Income Fund
Shares: 16,765.79
Annual Income: $8,130.07
Fidelity Capital and Income Fund (FAGIX) is another risky fund in the portfolio of the investor who earned $5,130per month in dividends. FAGIX is a high-yield fund exposed to below-investment-grade quality bonds, junk bonds and equities. It is up about 10% so far this year and has a yield of about 5%. The investor collected $8,130 a year from his investment in the fund.
Fidelity Floating Rate High Income Fund
Shares: 25,329.74
Annual Income: $18,863.56
The Fidelity Floating Rate High Income Fund (FFRHX) primarily invests in floating-rate loans and other floating-rate securities issued by companies with below-investment-grade credit ratings. The fund has a dividend yield of about 8%. According to the portfolio screenshots he shared publicly on Reddit, the investor earning $61,600 per year or $5,130 per month in dividends owned about 25,329 shares of the fund.
Fidelity Select Semiconductors Portfolio
Shares: 1,657.05
Annual Income: $2,820.29
Fidelity Select Semiconductors Portfolio (FSELX) invests in companies that design, manufacture or sell semiconductors. The investor who collected about $5,130 per month in dividends had 1,657 shares of the fund in his portfolio. Some of the fund’s top holdings include Nvidia, Broadcom, Taiwan Semiconductor and On Semiconductor.
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YieldMax NVDA Option Income Strategy ETF
Shares: 60.15
Annual Income: $1,046.63
YieldMax NVDA Option Income Strategy ETF (NYSE:NVDY) makes money by selling call options on Nvidia. Recently, the ETF has gained popularity amid the buzz around Nvidia. The fund has a distribution rate of about 52%. NVDY suits investors who believe in Nvidia’s long-term potential but want to hedge against possible declines in the chipmaker’s shares. The investor who earned $5,130 per month in dividends collected about $1,046 annually from the fund as he had about 60 NVDY shares in his portfolio.
Prospect Capital Corporation
Shares: 16,990.59
Annual Income: $12,233.23
Prospect Capital Corporation (PSEC) is a business development company with a dividend yield of about 12%. The stock fell earlier this month as the company announced its first-ever dividend cut since 2017. According to the portfolio screenshots he shared publicly, the investor earning about $5,130 per month in dividends had 16,990 shares of the company in his portfolio, which generated about $12,233 annually.
YieldMax TSLA Option Income Strategy ETF
Shares: 109.33
Annual Income: $1,558.23
YieldMax TSLA Option Income Strategy ETF (NYSE:TSLY) is a popular dividend ETF for income investors seeking high yields. With a distribution rate of 53%, TSLY generates income by selling call options on Tesla shares. TSLY is down 37% so far this year.
YieldMax Magnificent 7 Option Income Strategy ETF
Shares: 696.54
Annual Income: $7,377.08
YieldMax Magnificent 7 Option Income Strategy ETF (YMAG) generates income by selling call options on the Magnificent Seven stocks – Apple, Microsoft, Amazon, Nvidia, Alphabet, Meta and Tesla. The fund has a distribution rate of about 56% and pays monthly. The investor earning $5,130 monthly in dividends had 696 fund shares, raking in $7,377 a year in dividends.
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This article ‘Finally Able to Retire’ – Dividend Investor Earning $5,130 Per Month on $622K Investment Shares Portfolio: Top 9 Stocks, ETFs originally appeared on Benzinga.com
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