Zolak
Berkshire Hathaway (BRK.A)(BRK.B) Warren Buffett once expressed the idea of retiring from dividends. He said,
If I were retired and had a $1,000,000 stock portfolio that paid me $30,000 a year in dividends, my kids were grown, the house It’s paid off, I won’t have to worry too much about having a lot of cash.
Given that the Schwab US Dividend Equity ETF (SCHD) is currently yielding 3.42% on a 12-month basis, it has a track record of growing its dividend at a CAGR of over 10% over the past 5 and 10 years, as well as an annual growth rate of Compounding approximately 9% over the past three years, investors with a $1,000,000 portfolio can easily generate over $30,000 per year in profits with a simple click of the mouse. They will also enjoy earnings growth that will easily beat inflation for the foreseeable future.
This portfolio will be diversified across 103 individual holdings as well as broad sectors of the economy, and will be diversified among high-quality blue chip companies such as Texas Instruments (TXN), Amgen (AMGN), Pfizer (PFE), Lockheed Martin (LMT), and Coca. -Cola (KO), PepsiCo (PEP), Verizon (VZ), Chevron (CVX), Cisco (CSCO), and BlackRock (BLK), which make up the top 10 holdings and 41.65% of SCHD.
Furthermore, when you consider the fact that today’s average retiree earns about $1,800 a month in Social Security, they should be able to enjoy nearly $5,000 a month in retirement income between their SCHD earnings and their Social Security. These total returns should grow faster each year than the rate of inflation since Social Security gets an annual bump and SCHD has a long history of growing its dividend faster than inflation. As a result, a person retiring at approximately 65 should be able to live fairly comfortably if he were to build a portfolio with $1,000,000 invested in SCHD, pay off his home in full, have no other debt, and have no children Or other dependents.
Pursue a portfolio with a higher return
However, for investors who want to retire in a more expensive area or live a more luxurious lifestyle and want to take $60,000 a year in dividends from their $1 million investment portfolio and have it grow at least in line with inflation on top of Social Security. Security Payments, there are many great options to make this a reality.
Enterprise Products Partners (EPD) offers a very attractive dividend yield of 7.6% which should grow at a rate that beats inflation for the foreseeable future. Furthermore, it is supported by a well-diversified defensive portfolio of mid-tier infrastructure assets that are mostly contracted for long periods. It is also backed by an A-minus credit rating with a balance sheet with long maturities, almost fully fixed interest rates, significant liquidity, and a low leverage ratio of 3.0x.
MPLX (MPLX) is another attractive opportunity in the midstream space and offers a higher distribution yield of 8.4%. It has a strong BBB-rated balance sheet, a relatively low leverage ratio, and is also growing distribution at a rate that beats inflation.
Energy Transfer (ET) is another intermediary that has significantly strengthened its balance sheet recently and received a credit rating upgrade to BBB. The forward distribution yield is 8.3% and guides annual distribution growth of 3% to 5%.
For those who don’t like dealing with a K-1, they can either diversify into middle-of-the-road ETFs like the Alerian MLP ETF (AMLP) or the Global and TC Energy (TRP), and ONEOK (OKE), all of which have attractive dividends and earnings growth rates that should enable you to achieve mid- to high-single-digit dividend yields along with inflation-beating dividend growth for years to come.
Moving outside of the logistics sector, there are also many attractive opportunities in the REIT sector, including triple net lease REIT majors such as Realty Income (O) and WP Carey (WPC). They have credit ratings of A-minus and B-plus, respectively, and have a widely diversified portfolio of high-quality properties signed to long-term triple net leases. Realty Income has a track record of increasing its dividend every year for decades, along with a forward dividend yield of 5.8%. WP Carey recently cut its dividend, but it is in a much stronger position going forward. It recently divested from its office exposure and increasingly became an industrial REIT with a 6.0% dividend yield.
In the multifamily space, there are options like Mid-America Apartment Communities (MAA) and Camden Property Trust (CPT) that offer dividend yields of 4.3% and 4%, respectively. They also have strong records of earnings growth, very strong balance sheets, and well-diversified portfolios of multifamily properties, making them somewhat defensive in nature while also having strong long-term growth prospects.
Finally, there are some solid dividend payers with great track records in the BDC sector, such as Main Street Capital (MAIN) and Ares Capital (ARCC). While neither is particularly cheap at the moment, we believe their respective gains should be sustainable barring a catastrophic economic collapse. Main Street Capital yields 6.5% and is backed by an investment-grade balance sheet, while Ares Capital Corporation yields 9% and is also backed by an investment-grade balance sheet. These are impressive return builders.
For asset management, critical infrastructure, private equity and renewable energy exposure, along with additional exposure to commercial real estate, Brookfield Asset Management (BAM) is an attractive option. It has double-digit annual growth expectations for both distributable earnings and dividends per share, along with a 4% forward dividend yield, making it one of the most exciting dividend growth stocks on the market today.
Investor takeaways
By combining these names into a portfolio that contains, say, 50% SCHD stocks and 50% of these other large companies that are not generally found in SCHD’s portfolio, investors can achieve a dividend yield of about 5%. When combined with Social Security, this could earn them approximately $6,000 in passive income per month which should also grow at a pace that exceeds inflation over time while still retaining the security that comes from owning leading investment grade companies in the entire portfolio.
| protection | Weighting % | fruit |
| SCHD | 50% | 3.4% |
| Never | 4% | 7.6% |
| MPLX | 4% | 8.4% |
| at | 4% | 8.3% |
| scold | 3% | 7.5% |
| Radical Radical Party | 3% | 7.1% |
| Good | 3% | 5.1% |
| Hey | 4% | 5.8% |
| WPC | 4% | 6.0% |
| MAA | 4% | 4.3% |
| CPT | 4% | 4.0% |
| Main | 4% | 6.5% |
| ARCC | 4% | 9.0% |
| Bam | 5% | 4.0% |
Additionally, as Warren Buffett pointed out, with no personal debt and the house paid off in full, this would free a person to live on passive income in the long term. If they choose to be a little frugal, they can actually save some of that excess cash flow and reinvest it to increase their earnings growth rate and potentially leave a large inheritance to their heirs.
