As major AI stocks like Nvidia take a breather amid valuation concerns, investors are looking for new opportunities as we wrap up 2024. Matt Powers, managing partner at Powers Advisory Group, recently said during an interview on CNBC that dividend stocks can make a comeback in 2025. Powers said dividend growth stocks tend to perform well in the early stages of rate-cut cycles, while cash on the sidelines could also be a catalyst for dividend-paying companies.
“Assets and money market funds have continued to grow throughout the year. It’s not a mystery that investors have been taking advantage of elevated rates with low risk. We see a possible shift to the dividend equity side as a relatively conservative way to gain exposure,” the analyst said.
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About two years ago, someone asked on r/Dividends – a discussion board on Reddit with over 620,000 members, whether anyone could retire using dividend investing strategies. The response to the question was overwhelming, with several success stories of people living off dividends in retirement. One story stood out and got our attention.
An investor said he retired at 57 with his wife and had about $2.5 million in retirement funds. His annual dividend income was about $170,000 and his portfolio mostly consisted of bond funds.
“We withdraw only from my 401(k) ($1.2 million) at this point, about 10k a month. We are both 60. My portfolio is mostly bond funds that pay 5%-6%. The share price is down, but that doesn’t change how much is paid monthly. Her 401(k) is through Vanguard’s institutional funds, which aren’t available to individual investors; they pay about 10-13 percent. Our retirement principal has increased about 10% since retiring in 2020.”
“It was in 2009, bad market year but I had about $500,000. I invested the max in 401(k) and my IRA every year I worked. Pay yourself first! You can’t borrow to retire! Don’t chase the market or try to time it!”
The investor was asked to share the names of the bond funds in his portfolio. He said there were five core bond funds in his portfolio. Let’s take a look at them.
PGIM High Yield Fund
PGIM High Yield Fund (PHYZX) primarily invests in high-yield bonds rated Ba or lower by Moody’s or BB or lower by Standard & Poor’s. In the third quarter, the fund outperformed its benchmark, the Bloomberg U.S. High Yield 1% Issuer Capped Index, gross of fees.
Virtus Seix Floating Rate High Income Fund
Virtus Seix Floating Rate High Income Fund Class I (SAMBX) invests in floating-rate leveraged loans, seeking to earn more interest than the LIBOR benchmark through its investments. In the third quarter, the fund returned 2.36%, compared with its benchmark’s return of 2.08%. SAMBX has a distribution rate of about 8%.
PIMCO Income Fund Class A (MUTF: PONAX) generates income by investing in a diversified portfolio of fixed-income instruments. It also invests in high-yield securities rated below investment grade by Moody’s, S&P or Fitch.
Cohen & Steers Preferred Securities and Income Fund
Cohen & Steers Preferred Securities and Income Fund (CPXAX) invests in preferred and debt securities issued by U.S. and non-U. S. companies. The fund’s distribution rate is about 5%.
Thrivent High Yield Fund
Thrivent High Yield Fund Class S (LBHIX) invests in corporate bonds that are either unrated or rated as junk bonds. It has an over 6% yield.
