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Dividend stocks have been contributing significantly to market returns over the past several decades. Data shows that from 1998 to 2018, dividend stocks' compound annual return came in at 7.5%, compared with 6.6% for non-dividend stocks.
Last year, someone asked dividend investors on Reddit to share their average monthly dividend income. Several income investors shared impressive portfolios and numbers, but one particular comment got our attention.
An investor shared his portfolio screenshots that showed he was making about $60,900 a year, or $5,080 per month, in dividend income. His overall yield was 31%, which is extremely high because most of his portfolio consisted of risky covered call ETFs. The investor said after getting frustrated with his daily 9-to-5 job, he decided to take loans and invest into covered call dividend ETFs and plan a retirement path.
"Back in July 2023, I decided I was done with the 9-to-5 grind and really wanted to retire. So, I took out around $104K in loans and invested it into YieldMax ETFs. The dividends are high enough to cover my loan payments, with some extra left over. I use that extra dividend to invest in more stable funds once the loan payments are taken care of."
He said so far, his plan is working and he aims to retire by the end of next year.
"For now, I'm focused on maximizing compounding to grow my monthly payments. My goal is to retire by the end of 2026, hopefully I’ll be debt free and retired in 2027."
About 25% of the total portfolio of the investor earning $5,080 a month in dividends was allocated to YieldMax TSLA Option Income Strategy ETF (NYSE:TSLY).
YieldMax TSLA Option Income Strategy ETF is a popular dividend ETF for income investors seeking high yields. With a distribution rate of 74%, TSLY generates income by selling call options on Tesla (NASDAQ:TSLA) shares. TSLY is down 30% over the past 12 months.
YieldMax COIN Option Income Strategy ETF
YieldMax COIN Option Income Strategy ETF (NYSE:CONY) makes money by selling call options on Coinbase Global (NASDAQ:COIN). CONY is a risky investment since its upside potential is capped due to the covered call strategy and its performance is linked to a single company operating in the volatile crypto industry. The fund has a distribution rate of 114% and pays monthly. CONY is down 40% over the past 12 months.
CONY accounted for about 7.7% of the total portfolio.
Global X Nasdaq 100 Covered Call ETF
Global X Nasdaq 100 Covered Call ETF (NASDAQ:QYLD) was one of the top holdings of the investor who collected about $5,080 per month in dividend income.
It 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. The fund yields about 12.5%. Some of the top holdings of the ETF are Apple (NASDAQ:AAPL), Nvidia (NASDAQ:NVDA), Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), and Broadcom (NASDAQ:AVGO).
Over the past year, QYLD is up 3.9%. It had a 7.9% weightage in the portfolio, according to the portfolio screenshots shared by the investor.
The Defiance Nasdaq 100 Enhanced Options & 0DTE ETF (NASDAQ:QQQY) provides investors exposure to the Nasdaq 100 Index and generates income by selling call options. It has a distribution rate of 39%.
YieldMax NVDA Option Income Strategy ETF
YieldMax NVDA Option Income Strategy ETF (NYSE:NVDY) makes money by selling call options on Nvidia (NASDAQ:NVDA). The fund has gained popularity over the past few months amid the rise of Nvidia following the AI boom. The fund has a distribution rate of about 53%. NVDY suits investors who believe in Nvidia's long-term potential but want to hedge against possible declines in the chipmaker's shares.
KraneShares KWEB Covered Call Strategy ETF
The KraneShares KWEB Covered Call Strategy ETF (NYSE:KLIP) invests in the KraneShares CSI China Internet ETF and generates income by selling call options on the underlying securities. It has a 26% distribution rate and pays monthly.
Global X Russell 2000 Covered Call ETF
Global X Russell 2000 Covered Call ETF (NYSE:RYLD) made up 5.6% of the total portfolio. The fund generates income by selling call options on the small-cap-heavy Russell 2000 Index. The ETF yields about 13.2%. Being a covered call ETF, RYLD is also not risk-free and often posts losses during down markets. The ETF is now in the limelight as analysts believe small-cap stocks will be among the top beneficiaries of an easing monetary environment.
Realty Income (NYSE:O) is one of the most popular monthly dividend stocks in the market. In December, the REIT raised its dividend by 0.2%.
Main Street Capital
Main Street Capital Corp (NYSE:MAIN) is a business development company that raises capital by selling notes and shares to the public, lends money to small – and mid-sized companies and earns interest income. Unlike many other BDCs, Main Street Capital also asks for equity stakes in the companies it lends to. It has a dividend yield of about 6.7%.
JPMorgan Nasdaq Equity Premium Income ETF
JPMorgan Nasdaq Equity Premium Income ETF (NASDAQ:JEPQ) accounted for about 3.3% of the total portfolio. It's 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.
