Investing

Want $10,500 in Passive Income, Invest $5,000 Into Each of These Dividend Stocks

John Seetoo

Published: March 23, 2024 8:29 am

Last Updated: March 28, 2024 7:38 am

The Consumer Price Index recently revealed that, contrary to proclamations from the White House that inflation is down, it is only the rate of inflation growth that has slowed down. Prices of goods and services are still elevated and rising, with average food bills up in double digits. Given that US Treasury yields are approaching record highs, interest rate cuts for 2024 are expected to be minimal, if at all, and unlikely to commence until the second half of 2024. 

Since wages have not kept up with inflationary prices, ancillary income streams are necessary for many households to make ends meet. For those that are sitting on liquid assets, passive income in the form of high-yield dividend stocks might be an attractive option. A net double-digit annual return on investments that have sector diversification and liquidity elements are always worth any savvy investor’s consideration.

A sizable number of dividend stocks on this list manage large high-yield bond portfolios. Given that the cost of entry to invest in bonds is considerably higher than with stocks, these bond-based stocks can often be viewed as de facto mutual funds, and are analyzed accordingly by Morningstar and other analyst groups, if one was trying to make comparisons with other asset classes. 

We screened our 24/7 Wall St. dividend equity research database, looking for stocks that pay substantive dividends, and we found a collection of companies that, combined, can generate over $10,500 a year in passive annual income if you invest just $5,000 in each stock at the time of this writing:

XAI Octagon Floating Rate & Alternative Income Trust

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• Stock #1: XAI Octagon Floating Rate & Alternative Income Trust Inc. (NYSE: XFLT)
• Yield: 15.72%
• Shares for $5,000: 707
• Annual Passive Income: ~$ 786.00

Operating out of Chicago, IL, XAI Octagon Floating Rate & Alternative Income Trust Inc. is a company that manages a portfolio of predominantly debt instruments that are floating rate, meaning that their coupon payments have a basis point spread against a variable rate pegged to a particular interest rate benchmark, like, for example, LIBOR or the 10-year US Treasury bond. During periods of interest rate hikes from the Federal Reserve, as we have experienced in recent years, these payments have ballooned commensurately.

The 75% majority of the portfolio consists of Senior Secured First Lien Debt and Collateralized Loan Obligations. The remainder are Collateralized Loan Debt, High-Yield Debts, and Secured Second Lien Debt. The average bond price is 86% of par and average maturity is roughly eight years. As the bonds pay off at par when they mature, that means XFLT realizes the 14% differential as additional upside. 

PIMCO High Income Fund

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• Stock #2: PIMCO High Income Fund (NYSE: PHK)
• Yield: 13.85%
• Shares for $5,000: 1,018
• Annual Passive Income: ~$ 692.50

The PIMCO High Income Fund is a closed-end fund that is co-managed by Pacific Investment Management Company and Allianz Global Investors Fund Management, LLC. Headquartered in Newport Beach, CA, the PIMCO High Income Fund manages a portfolio of high-yield Collateralized Debt Obligations. The fund was formed in 2003.

The bulk of the PIMCO High Income Fund’s portfolio consists of bonds between 5-10 year maturities. Roughly 30% are high-yield “junk” bonds, 15% are US Government related, 12% are mortgage bonds, and 11.42% are non-USD developed; i.e., foreign industrialized nation bonds. 

Virtus Convertible & Income Fund II

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• Stock #3: Virtus Convertible & Income Fund II (NYSE: NCZ)
• Yield: 13.48%
• Shares for $5,000: 1,766
• Annual Passive Income: ~$ 674.00

Founded by Allianz and jointly managed by the Allianz Global Investors Fund Management LLC and Allianz Global Investor U.S. LLC, the Virtus Convertible & Income Fund II is a closed-end fund primarily managing a portfolio of convertible bonds and high-yield bonds that are below investment grade (i.e., “junk bonds”). As a risk mitigation policy, Virtus Convertible & Income Fund II keeps the average maturities of its holdings between 5 to 10 years. 

Western Asset Diversified Fund

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• Stock #4 : Western Asset Diversified Fund (NYSE: WDI)
• Yield: 13.45%
• Shares for $5,000: 346
• Annual Passive Income: ~$ 672.50

Founded in 2020 by mutual fund goliath Franklin Templeton and managed by Western Asset under its NY Legg Mason subsidiary, Western Asset Diversified Fund is another closed-end high-yield bond fund. Unlike most traditional mutual funds, WDI has the flexibility to access private debt markets and fixed-income sectors usually unavailable to conventional funds if WDI analyzes strong fundamentals and undervalued prices.

As of February 2024, the WDI portfolio was weighted toward high-yield credit at 40%, with collateralized loan obligations at 13%, and commercial mortgage-backed securities at 12%.

PennantPark Investment Corporation

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• Stock #5 : PennantPark Investment Corporation (NYSE: PNNT)
• Yield: 12.59%
• Shares for $5,000: 850
• Annual Passive Income: ~$ 629.50

PennantPark is a business development company (BDC) that operates as a private equity company which is, ironically, a public company. The Miami Beach-based BDC engages in direct senior secured loans, mezzanine debt, and equity investments. These financings can manifest in an array of configurations: preferred stock, warrants, options, senior secured debt, mezzanine loans, and other types of debt securities, as well as direct equity investments. 

In general, PennantPark will consider financings and investments of between $10 million and $100 million in companies with EBITDA of between $10 million and $50 million. Industry agnostic, PennantPark financings range from real estate, technology, telecom, casinos, entertainment and media, oil & gas, healthcare, pharma, transportation, aerospace, manufacturing, and food and beverage, to name a few. 

Apollo Commercial Real Estate Finance Inc.

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• Stock #6 : Apollo Commercial Real Estate Finance Inc. (NYSE: ARI)
• Yield: 12.56%
• Shares for $5,000: 448
• Annual Passive Income: ~$ 628.00

Private equity and asset management giant Apollo Global Management has its hands in a wide range of industrial sectors. The Apollo Commercial Real Estate Finance Inc. REIT (Real Estate Investment Trust) is a part of Apollo’s commercial real estate finance operations. ARI originates, underwrites and manages Apollo’s mortgage portfolio and other real estate debt finance investments in North America, Europe, and the U.K. 

PGIM Global High Yield Fund, Inc.

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• Stock #7 : PGIM Global High Yield Fund (NYSE: GHY)
• Yield: 12.23%
• Shares for $5,000: 428
• Annual Passive Income: ~$ 611.50

The PGIM Global High Yield Fund is a closed end high-yield bond fund founded by Prudential Securities subsidiary PGIM in 2012. Located in Newark, NJ, the PGIM Global High Yield Fund is essentially a high-yield bond mutual fund. Management policy prefers shorter duration maturities of bonds that are rated no higher than Ba1 or BB+ by Moody’s and Standard & Poor’s, respectively. 

The PGIM Global High Yield Fund portfolio contains both US and non-US bonds. The largest sector weighting is in the Gaming & Leisure industry (8.7%), with Healthcare & Pharmaceuticals (7.4%), and Home Construction (7.2%). 

Chicago Atlantic Real Estate Finance Inc.

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• Stock #8 : Chicago Atlantic Real Estate Finance Inc. (NASDAQ: REFI)
• Yield: 11.60%
• Shares for $5,000: 308
• Annual Passive Income: ~$ 580.00

Incorporated only a few years ago in 2021, Chicago Atlantic Real Estate Finance is a REIT that originates, underwrites, and manages commercial real estate mortgages. Of particular note is that Chicago Atlantic Real Estate Finance Inc. has a significant portfolio weighting towards mortgages and real estate backed debt from state government licensed cannabis and CBD operators.

Barings BDC Inc.

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• Stock #9 : Barings BDC Inc. (NYSE: BBDC)
• Yield: 11.27%
• Shares for $5,000: 541
• Annual Passive Income: ~$ 563.50

Although it is currently owned by MassMutual Insurance, Barings has a long history as a British merchant bank, dating back to the late 1700’s. The original Barings helped the U.S. finance the Louisiana Purchase and was one of the first European companies to do business in China and Japan. 

Registered as a Business Development Company, Barings BDC engages in senior secured debt, mezzanine debt, first lien debt and other types of finance for private corporations. Use of proceeds can range from Leveraged Buyouts, management buyouts, acquisitions, growth finance and recapitalizations to Employee Stock Ownership Plans. 

Barings BDC’s focused financing targets are US companies with EBITDA between $10 million and $75 million in manufacturing, technology, business services, transportation and logistics, and consumer services. Maturities average between 5 and 7 years, while interest income target is normally LIBOR +450 basis points to LIBOR +650 basis points per annum. 

Blackstone Secured Lending Fund

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• Stock #10 : Blackstone Secured Lending Fund (NYSE: BXSL)
• Yield: 11.27%
• Shares for $5,000: 163
• Annual Passive Income: ~$ 563.50

With over $900 billion AUM, New York headquartered Blackstone is one of the largest alternative asset managers on Earth. Blackstone Secured Lending Fund is Blackstone’s own Business Development Company arm, structured as a closed-end fund. BXSL’s $9 billion + portfolio is 98% composed of first lien secured loans. The industry sectors of focus going into Q4 2023 were in veterinary care, insurance, and cable communications distribution. 

Virtus Artificial Intelligence & Technology Opportunities Fund

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• Stock #11: Virtus Artificial Intelligence & Technology Opportunities Fund (NYSE: AIO)
• Yield: 11.16%
• Shares for $5,000: 258
• Annual Passive Income: ~$ 558.00

With Artificial Intelligence reigning as the hottest sector on Wall Street, numerous asset managers and private equity funds have entered the fray, vying for stakes in what may be the next Nvidia Corp. (NASDAQ: NVDA). Virtus Investment Partners is no exception. Its Virtus Artificial intelligence & Technology Opportunities Fund takes stakes in select public and private AI and other cutting edge technology companies via convertible securities or direct equity investment.

Nearly half of the portfolio is invested in common stocks (49%). Convertible bonds (31%) and high-yield bonds (15%) round out the rest of the holdings, apart from cash on hand.

In an ironic parallel to the sci-fi film, Blade Runner, which focused on cyborgs with a built-in termination of lifespan, Virtus has chosen to terminate Virtus Artificial Intelligence & Technology Opportunities Fund on October 29, 2031, absent a Board of Trustees vote for an extension.

Eaton Vance Floating Rate Income Trust

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• Stock #12: Eaton Vance Floating Rate Income Trust (NYSE: EFT)
• Yield: 10.73%
• Shares for $5,000: 377
• Annual Passive Income: ~$ 536.50

With an interest rate cut by the Federal Reserve no longer apparent in the near term, interest rates on floating rate securities will remain at current levels or possibly increase if prevailing market rates rise due to inflation. Such a scenario will likely bode well for Eaton Vance Floating Rate Income Trust. The Boston-based closed end fund’s focus is on U.S.-based company senior, secured floating rate debt. As a benchmark for its annual performance, Eaton Vance utilizes the S&P/LSTA Leveraged Loan Index. Some of the larger positions in the Eaton Vance Floating Rate Income Trust portfolio includes bonds from: Virgin Media, Ultimate Software Group, and Gainwell Technologies. 

Delek Logistics Partners, LP

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• Stock #13: Delek Logistics Partners L.P. (NYSE: DKL)
• Yield: 10.67%
• Shares for $5,000: 126
• Annual Passive Income: ~$ 533.50

Unlike the tales of intrepid oil drilling wildcatters like John D. Rockefeller or T. Boone Pickens, the indisputably more mundane business of oil logistics, transport, refining, storage and marketing gets much less publicity but is the true lifeblood of the industry and the only way oil can become a tangible product for commercial viability.

MidCap Financial Investment Corporation

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• Stock #14: MidCap Financial Investment Corporation (NASDAQ: MFIC)
• Yield: 10.58%
• Shares for $5,000: 345
• Annual Passive Income: ~$ 529.00

Benefitting from its close affiliations with both lender MidCap Financial and Apollo Global Asset Management, the MidCap Financial Investment Corporation is a Business Development Company that will invest in the form of direct equity or first lien loans, secured and unsecured debt, collateralized loan obligations, credit linked notes, and other loan structures, as well as PIPE (Private Investment in Public Equity) deals. Debt maturities average between five and ten years.

Neuberger Berman Energy Infrastructure and Income Fund

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• Stock #15: Neuberger Berman Energy Infrastructure and Income Fund (NYSE: NML)
• Yield: 10.54%
• Shares for $5,000: 698
• Annual Passive Income: ~$ 527.00

Unlike the fixed-income focus of most of the other dividend stocks in this list, Neuberger Berman Energy Infrastructure and Income Fund is one of the few exceptions. Its focus is solely in the public equity energy market, particularly in common stocks and midstream limited partnership and limited liability companies, such as above listed #13,  Delek Logistics (NYSE: DKL). 

As of its latest annual report to date, the fund’s portfolio is weighted 66.2% in common stocks and 33.5% in limited partnerships.

Ares Capital Corporation

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• Stock #16: Ares Capital Corporation (NASDAQ: ARCC)
• Yield: 9.51%
• Shares for $5,000: 247
• Annual Passive Income: ~$ 475.50

Ares Capital Corporation is a business development company that operates throughout the U.S. regionally from its New York, Chicago, or Los Angeles offices. The financings and investments can take the standard variety of equity and debt manifestations, but Ares is also somewhat more aggressive, innovative and risk tolerant than its peers. For example, Ares will sometimes deploy revolving credit lines for financing companies. Additionally, Ares will consider third-party senior and subordinated debt financings and heavily discounted distressed debt. Ares is also not a passive investor. It prefers to be the primary agent or lead on any deal in which it commits to, and will demand commensurate board representation once engaged. 

LMP Capital and Income Fund, Inc.

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• Stock #17: LMP Capital and Income Fund (NYSE: SCD)
• Yield: 9.19%
• Shares for $5,000: 342
• Annual Passive Income: ~$ 459.50

The LMP Capital and Income Fund, jointly managed by Franklin Templeton’s Legg Mason Partners Fund Advisors, LLC, Western Asset Management, and Clearbridge Investments, is the closest dividend stock in this list to what would be characterized as, “a diversified, blended mutual fund.”

LMP Capital and Income Fund invests in a variety of large cap stocks and investment grade bonds rated A- or higher, as well as REITs and both energy and non-energy limited partnerships. 

DoubleLine Opportunistic Credit Fund

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• Stock #18: DoubleLine Opportunistic Credit Fund (NYSE: DBL)
• Yield: 9.26%
• Shares for $5,000: 327
• Annual Passive Income: ~$ 463.00

Operating from Tampa, FL, DoubleLine Opportunistic Credit Fund is an exclusively fixed-income based fund. Its portfolio breakdown includes both residential and commercial mortgage-backed securities, US Treasury securities, corporate debt, asset-backed bonds, and international sovereign bonds. It assesses its portfolio against the Barclays Capital US Aggregate Bond Index. 

BlackRock Science and Technology Term Trust

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• Stock #19: BlackRock Science and Technology Term Trust (NYSE: BSTZ)
• Yield: 8.30%
• Shares for $5,000: 270
• Annual Passive Income: ~$415.00

As the 800 lb. gorilla of global asset management funds, one would be shocked if BlackRock did not have a presence in the high-tech equities sector. But of course, it does: the BlackRock Science and Technology Term Trust, which is a closed-end fund tasked exclusively with buying share stakes in publicly traded US and non-US cutting-edge technology companies. BlackRock’s BSTZ is open to stocks of any market cap if the underlying technology is deemed to have substantial growth potential. 

BSTZ also has no qualms over stating up front that its strategy includes covered call option writing to augment its portfolio’s risk-adjusted returns.