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Investing in dividend stocks is an effective strategy for securing a reliable income stream during retirement. A study from Ned Davis Research showed that dividend stocks returned about 8.8% annually in aggregate between 1972 and 2012, compared with just a 1.6% return for non-dividend stocks.
But which stocks are reliable enough to live entirely off dividends? Let's turn to a case study for ideas.
In December last year, someone ran a poll on r/Dividends – a discussion board for income investors on Reddit with 626,000 members – asking whether any retirees were living entirely off dividends. The post received over 200 responses featuring many interesting stories of retirees living off dividend income.
An investor said he lived "quite comfortably" on dividends and social security. He earned over $160,000 in dividends annually and had a portfolio yield of about 4.5%.
"We have an ever-increasing income stream and a portfolio that still grows because of appreciation and we reinvest about 10% of our dividends," he said.
When asked what he did for a living, the investor said he and his wife earned "above-average" incomes.
"We also put three kids through college with no loans. I always took to heart the advice I was given many years ago: It doesn't matter how you make your money; it's what you do with it that counts."
During the discussion, the investor revealed his top 20 holdings. Let's examine some of these stocks.
Pembina Pipeline Corporation (PBA) is a Canadian company that operates transportation and storage infrastructure. Its dividend yield is about 4.9%, according to Benzinga Pro. The investor, who earned $160,000 per year in dividends, said PBA was among his biggest positions. The stock has gained about 18% this year.
Realty Income
Realty Income Corporation (O) is one of the most famous monthly dividend stocks. The REIT has raised its dividends for 30 straight years. However, the stock is down 4.5% so far this year. The possibility of tariffs from President-elect Donald Trump against China is weighing on the stock as many of the company's tenants are retailers that import products from China.
Johnson & Johnson
Johnson & Johnson (JNJ) was among the investor's biggest holdings. He made a bull case for the stock during the discussion:
"I think JNJ is at an attractive entry price for new investors. I already have 1,100 shares, so I don't want it to get too large for my portfolio balance. JNJ's stock price is currently depressed due to litigation. But they are a mammoth company and will come through this. No court is going to seriously damage their business. I am old enough to remember the Tylenol scare. These things generally present buying opportunities if you have a long-term view and are buying for yield."
Over the past year, the stock has lost about 5% of its value.
Iron Mountain Incorporated (IRM) is a data storage REIT that provides physical storage solutions for documents and records. Its customers are major businesses with data storage and information management requirements. The company makes money via contracted storage rental fees with long-term agreements. It has a dividend yield of 2.42%, according to Benzinga Pro.
WP Carey
The investor earning $160,000 in annual dividend income said WP Carey Inc. (NYSE:WPC) was among his top positions. WP Carey Inc. is one of the top net lease REITs, managing over 1,200 properties across the U.S., Europe and other parts of the world. Retail stores, restaurants, automotive companies and grocery stores are among the REIT's tenants.
Procter & Gamble
Procter & Gamble Co (NYSE:PG) has raised its dividends for 68 consecutive years and has a yield of 2.3%, according to Benzinga Pro. The stock is up about 20% over the past year.
BlackRock
Investment giant BlackRock Inc. (NYSE:BLK) was also part of the portfolio of the retired investor living off dividends. BlackRock's dividend has seen a 9.5% rise annually over the past five years. As of 2023, the company has increased its payouts for 14 straight years.
Electricity production and distribution company Entergy Corporation (ETR) was among the top holdings of the retired investor living off dividends. Entergy shares are up 50% this year. It recently made news after Meta Platforms said it plans to spend $10 billion to build an AI data center in Louisiana. Meta will work with Entergy to power the data center.
OGE Energy
Oklahoma-based utility company OGE Energy Corp. (OGE) was also part of the portfolio generating $160,000 in annual dividend income.
IBM
International Business Machines Corporation (IBM) has raised its payouts for 29 consecutive years. The stock has gained about 45% this year.
Starwood Property
Starwood Property Trust Inc. (NYSE:STWD) is a Connecticut-based REIT that focuses on commercial mortgage loans and equity investments. Its dividend yield is about 9.6%, according to Benzinga Pro.
Prologis
San Francisco-based REIT Prologis Inc. (NYSE:PLD) has a dividend yield of over 3.3%, according to Benzinga Pro. Saudi Arabia’s sovereign wealth fund increased its stake in the company by 34.5% to 1.55 million shares in the third quarter.
Interest Rates Are Falling, But These Yields Aren't Going Anywhere
Lower interest rates mean some investments won't yield what they did in months past, but you don't have to lose those gains. Certain private market real estate investments are giving retail investors the opportunity to capitalize on these high-yield opportunities.
