High yield dividend portfolio

[15rms]

Due to unexpected health issues I am soon to be retiring. I have enough capital to double my SS check if I can earn over 8%. I am considering a diversified portfolio of high dividend stocks and etf's. I have many questions and concerns hopefully you guys can chime in with some constructive ideas.



My questions are. Are etf's and their dividend safer than stocks? If I diversify between the two and several different industries would that be safe? I notice bond etf's, pipeline stocks, reit's are plenty full in the high dividend yield category. Is there a super safe area I should be heavily weighted in? I can find enough stocks and etf's with a dividend over 10% to build my portfolio. Would chasing yield like this eventually destroy the value of my portfolio?



Any constructive feedback someone may have would be welcome. Thanks

 

[stepandfetchit]

My 0.000005 cents
Beware of any advice that "appears" to solve your "worries". There are no easy answers. What you desire seems achievable, but you should carefully weigh the possible short cummings of any plan. -- Is diversifying as you mention superior to a long SPY position? (Not recommending anything, but it is very possible to overcomplicate for the wrong reason). -- Consider past performance and drawdowns of which-ever approach you chose and beware of the tendency to "change direction" in the event of draw-down at the worst possible times!

 

[wintergasp]

Due to unexpected health issues I am soon to be retiring. I have enough capital to double my SS check if I can earn over 8%. I am considering a diversified portfolio of high dividend stocks and etf's. I have many questions and concerns hopefully you guys can chime in with some constructive ideas.



My questions are. Are etf's and their dividend safer than stocks? If I diversify between the two and several different industries would that be safe? I notice bond etf's, pipeline stocks, reit's are plenty full in the high dividend yield category. Is there a super safe area I should be heavily weighted in? I can find enough stocks and etf's with a dividend over 10% to build my portfolio. Would chasing yield like this eventually destroy the value of my portfolio?



Any constructive feedback someone may have would be welcome. Thanks

An ETF is just a fund that tracks an underlying, they are not a new "asset class" per se.

In EU, pension funds need to make 3% and they make 2%, which is a big deal for them, and they have enough money to hire a lot of smart guys, so no 8% or 10% of dividends on a portfolio is not possible, if you're looking to preserve your initial capital. Otherwise any pension fund would do 8-10% and there would be no pension deficit.

My advise would be for you to look at real estate, you have some time to manage a few flats or houses that you could buy, banks will fund it easily so you might end up with a nice portfolio, and that will probably yield 3-4% of renting monies + the capital gains.

The whole idea to buy a portfolio that gives you 8% of yield, then close your eyes very hard on the marked-to-market value of the portfolio and live off the 8% is an idea that every HNWI investors I know has tried and they have all failed.

 

[sle]

As wintergasp said, it's a pretty tall order. I would only compliment his words with "depends on the size" - if you need to make 16k on a 200k portfolio (sounds like your case) it's easier to achieve then 160k on 2mm portfolio. Why dividend portfolio as opposed to doing some value added activity like a buy-and-repair rental property?

 

[luisHK]

As wintergasp said, it's a pretty tall order. I would only compliment his words with "depends on the size" - if you need to make 16k on a 200k portfolio (sounds like your case) it's easier to achieve then 160k on 2mm portfolio. Why dividend portfolio as opposed to doing some value added activity like a buy-and-repair rental property?

Why the difference between 200k and 2 million for a buy and hold portfolio, like OP is looking at ? It doesn't look like 2mln would create liquidity issue, nor relatively bigger drawdowns.

 

[sle]

Why the difference between 200k and 2 million for a buy and hold portfolio, like OP is looking at ? It doesn't look like 2mln would create liquidity issue, nor relatively bigger drawdowns.

I was giving a relative size example. A concrete advice would be to build a diversified book of micro cap preferred/bonds and some common stocks. Maybe throw some business loans with real collateral into the mix. Something where you understand the risk of each business, your position in capital structure and exposure to global risk factors. Loss-adjusted you can probably hit 7-8% but that's hard work as opposed to "passive income"

 

[15rms]

Thanks for the feedback. I will be more specific. I will be receiving $325,000. It is qualified to go into a regular IRA. I will have 22 months tell I am 67 and can receive full SS. I am thinking on using $25,000 for a $3,000 a month negative cash flow tell the dividends kick in. After I start receiving the dividends I will still take the $3,000 a month tell I reach 67 years old and start taking SS. If I can reach 8% return I will be receiving $2,000 a month dividends and $1,000 a month negative cash flow. To get an 8% or better return I am looking at IEP, and HYLD. Both coming in at $75,000 for a total of $150,000. I will than purchase $25,000 worth of BDCL, DVHL, EEP, and YMLP. That will leave me $50,000 to purchase higher risk things such as DX, USAC, IVR and ARCX. None of these choices are set for sure. I am not interested in investing in property. Still interested in more feedback mostly because this seems too easy. I don't understand why it is not. Thanks.

 

[sle]

Well, think about why these things have such a high yield? It's because they are somewhat distressed and some of that negative expectation is built into the price of the basket. So while you can lock in the yield, it's possible that some of the components of the basket will go bankrupt and you will lose money.

 

[Handle123]

When dealing with money, never seems easy as there is always risk. Right now if like not best time to be starting when stock market is so high, so your percentages will always be based on what you paid for stock/ETF, so when the market goes into a downtrend, are you ready to take a 50% loss on stock/ETF to get reduced dividend? It different if you were buying in 2009 at much lower prices as gains has doubled or more in stock value and dividends are based in my mind as when I bought them. So what I would advise is look for stocks/ETFs where they have done horrible 4 of last 5 years as a sector of the Dow or look for Commodities that are near ten year lows then look for stocks either going sideways or have made lows, then buy into them with dividends so you are buying low which has least risk and dividends be higher like Sunaco or real estate ETFs, crude oil related, coffee low.

You might also consider working till 70 and sign up for medicare but delay taking the money, could be getting extra $1000 per month by doing the delay. By working longer, set up a Roth so you can draw out without paying taxes.

 

[stepandfetchit]

Comment after a few brewski's : Once you understand how the sausage is made, your appetite may shift elsewhere. Consider PIMCO's PCI closed-end fund. Yield about 10% and chart seems appetizing.