Investing

Want $250 Per Month In Passive Income? Invest In These Stocks

John Seetoo

Published: May 10, 2024 11:21 am

An article in The Wall Street Journal reported in early May that consumers across the US have had to drastically cut spending on purchases from McDonald’s, Starbucks, and on name brand packaged foods, like Chips Ahoy cookies, due to high inflation. The article cited from Labor Department statistics that average current fast-food prices had increased 33% for the same items in 2019, with average grocery prices up commensurately by 26%. 

Can You Afford A Daily $5.25 Tall Mocha From Starbucks?

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For those many Americans who are feeling the squeeze but still want that $5.25 Tall Mocha from Starbucks, the only answers are to cut spending elsewhere or to augment income. The latter can be had by active means, i.e., a second job or side hustle, or via passive means, such as letting the money you have work for you.

For those looking at the passive income route, dividend stocks are a worthwhile consideration. 

A platform that can deliver a 9-12% annual yield is certainly not easy to attain in a lot of investment arenas. 24/7 Wall Street has a catalog of dividend stocks in various groupings that it has published previously. Based on market prices at the time of this writing, a $5,000 investment in each stock in this particular group will cumulatively generate over $3,000 annually, which equates to over $250 per month – enough to afford to buy that $5.25 Tall Mocha every day and still have some left over! 

Calamos Dynamic Convertible and Income Fund

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Stock #1 : Calamos Dynamic Convertible and Income Fund (NASDAQ: CCD)

Yield: 13.29%

Shares for $5,000: 219

Monthly Dividend Amount: ~$55.38

Convertible bonds are fixed-income instruments that pay their coupon yield but have a prearranged convertibility option to common stock at the investor’s discretion. This gives the investor flexibility to take advantage of market conditions that may signal an upside swing in the common stock market price, which might prove more lucrative than the coupon income.

Naperville, IL based Calamos Dynamic Convertible and Income Fund is a closed-end mutual fund that invests in publicly traded convertible securities, as well as corporate bonds, equity  linked notes, and floating rate bonds. The fund also uses option trading to boost returns.

The fund’s portfolio of $802 million assets under management (AUM) as of the end of April is somewhat skewed towards the Information Technology sector, which is nearly 24%. Healthcare at 18% and Consumer Discretionary at 17.3% round out the top three. 83.69% of all investments are convertible securities. 

The top three largest holdings are in convertible bonds issued by Uber Technologies (2.2%), ON Semiconductor Corp. (1.8%), and DexCom Inc. (1.8%).

First Trust High Yield Opportunities 2027 Term Fund

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Stock #2 : First Trust High Yield Opportunities 2027 Term Fund (NYSE: FTHY)

Yield: 12.05%

Shares for $5,000: 350

Monthly Dividend Amount:~$50.21

Most high yield funds will often derive those yields from high yield bonds, which are usually  rated below investment grade. This means that Moody’s and Standard & Poor’s rate the bond below BBB-, which implies a correspondingly higher risk of default factor. 

The First Trust High Yield Opportunities 2027 Term Fund is a global high yield fixed-income mutual fund. Although the fund has a limited remaining lifespan of three years, short of a management decision to change or a shareholder proxy vote, it continues to deliver double-digit yields from its $691 million AUM  portfolio. 

As of April 2024, 18% of holdings were rated B-, 14.82% were B, and 14.37% were B+. 16.76% were from software sector companies, 13.59% were from insurance, and 12.74% were from media.  The largest bond issuer holdings in the fund’s portfolio were from SS&C Technologies Holdings, Inc. (3.27%), Open Text Corp. (Canada) (3.17%), and Nexstar Broadcasting (3.11%). 

PGIM High Yield Bond Fund, Inc.

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Stock #3 : PGIM High Yield Bond Fund, Inc. (NYSE:ISD) 

Yield: 11.28%

Shares for $5,000: 392

Monthly Dividend Amount: ~$47.00

PGIM, formerly known as Prudential Investment Management, has a long history in finance, dating back to the original Prudential Financial, founded in 1875. It is presently one of the top 10 largest asset management firms on the planet. 

Operating from PGIM’s Newark, NJ offices, the PGIM High Yield Bond Fund, as one might expect from its name, invests almost exclusively in high yield bonds, and eschews mortgage backed securities, asset backed securities, or municipal bonds. Average duration is three years. . 

BlackRock Debt Strategies Fund, Inc.

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Stock #4 : BlackRock Debt Strategies Fund, Inc. (NYSE:DSU)

Yield: 10.90%

Shares for $5,000: 456

Monthly Dividend Amount: ~$45.42

With $10 trillion AUM, New York’s BlackRock is the King of the Hill in the Asset Management arena. The BlackRock Debt Strategies Fund, Inc. is one of BlackRock’s numerous fixed-income mutual funds, and is designed for maximizing income. 

As its name implies, the BlackRock Debt Strategies Fund invests in a range of below investment grade (i.e., “junk” rated) corporate loans, debt instruments, and unrated securities. 

Nuveen Real Asset Income and Growth Fund

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Stock #5  : Nuveen Real Asset Income and Growth Fund (NYSE: JRI)

Yield: 10.44%

Shares for $5,000: 431

Monthly Dividend Amount: ~$43.50

Unlike the above-mentioned fixed-income based mutual funds, Chicago headquartered Nuveen Real Asset Income and Growth Fund invests the majority of its portfolio in global public equities and preferred stocks with a focus on the real estate, REIT and infrastructure sectors. The fund’s policies allow up to 40% maximum investment in debt securities, but no more than 10% in CCC+ or lower. It also allows for portfolio managers to hold as much as 75% in non-US securities. 

As of April, 2024, the largest sector portfolio allocation was evenly split 22.4% Real Estate common stocks and 22.4% Infrastructure Common Stocks. Infrastructure preferred stocks were 17.9%.

Hannon Armstrong Sustainable Infrastructure Capital, Inc.

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Stock #6 : Hannon Armstrong Sustainable Infrastructure Capital, Inc. (NYSE:HASI)

Yield: 6.37%

Shares for $5,000: 190

Monthly Dividend Amount: ~$26.54

Sustainable sources and renewable energy generation are areas of the energy sector that have received much government support and analyses from environmentalists, conservationists, infrastructure specialists, and, unsurprisingly, investors. 

Annapolis, MD based Hannon Armstrong Sustainable Infrastructure Capital, Inc. has several collaborations and investments in a range of green energy and renewable projects and operations:

• C&I Solar – a Behind the Meter 131 megawatt portfolio of distributed solar and solar energy storage projects in CA, CO, IL, IA, MA, MI, NY, OR, TX and VA).
• Clearway Energy – $660 million investment in a 2 gigawatt portfolio of wind and solar powered projects.
• $70 million Bus Fleet decarbonization project via software innovations in a major metropolitan market.
• $125 million Renewable Natural Gas portfolio of operating Landfill Gas-to-RNG and Wastewater Treatment Biogas-to-RNG plants. 
• Minority stake in a 1.3 gigawatt portfolio of 1 wind and 17 solar power projects. 
• 605 megawatt portfolio with Community Solar and C&I Solar for solar power and storage projects in AZ, CA, CO, CT, GA, HI, IL, MA, NY, RI, and VT. 

While Hannon Armstrong stock’s 6% + yield is certainly nothing to sneeze at, it may have a stronger case on its capital appreciation upside potential.

Analysts like Zacks rank it a “Strong Buy” due to certain growth factors: 

Hannon Armstrong’s EPS growth is expected to be 5.9% this year, more than double the 2.4% industry average. Additionally, cash flow growth is even more impressive. Hannon Armstrong’s recent year-over-year cash flow growth has been +15.9%, vs. the industry average of -7.2%.  Historically, its cash flow growth has been +24.3% over the past 3-5 years, with the comparable industry average at -1%. 

While an extra $250 or so per month doesn’t seem like much, it equates to about $3,000 annually, a figure that appears much more attractive within the overall context. Nevertheless, diligent portfolio monitoring is advised, especially since news and market events can impact dividends in a number of ways. Fortunately, the liquidity of the capital markets and the flexibility to switch one dividend stock for a replacement of near equivalent yield can be executed swiftly and painlessly. It’s one way to keep those daily Tall Mochas coming!