Investing

Want $500 Per Month In Passive Income? Invest In These Stocks

John Seetoo

Published: May 5, 2024 1:20 pm

A great majority of American households are feeling squeezed as prices for essentials like food and medicine continue to climb upwards and buying power diminishes daily. If a family’s monthly grocery bill has soared from $400 per month to $600 per month, where is that $200 difference supposed to come from? If gasoline has gone from an average $2.19 per gallon to $3.29, that 50% increase can mean much less discretionary spending per month. 

Short of getting an extra job or foregoing meals, those fortunate enough to have liquid funds for investment may wish to shift from a growth strategy to an income producing one. Dividend paying stocks may be an excellent option for generating passive income that also has adequate liquidity if the cash is needed for emergencies.  

24-7 Wall Street has published numerous articles concerning dividend stocks as a source of passive income. Its database is chock full of dividend stocks that hail from all aspects of the financial spectrum, and mixing and matching the right combinations to suit each investor’s requirements is far easier now than it might have been in the past. 

If an additional $500 per month is something that could help to bridge the shortfall in one’s household budget, an investment of $10,000 in each of the following stocks might do the trick.

DoubleLine Income Solutions Fund

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Stock #1 : DoubleLine Income Solutions Fund (NYSE: DSL)

Yield: 12.75%

Shares for $10,000: 816

Monthly Dividend Amount: ~$106.25

Based in Tampa, FL, DoubleLine Income Solutions Fund is a closed-end mutual fund that invests in global fixed-income instruments with a goal of maximizing consistent high income. With $1.66 billion AUM, the fund’s portfolio is heavily weighted 77.81% in CCC and lower rated bonds, as of March, 2024. 

64.47% of the portfolio is allocated to corporate bonds. 23.24% are securitized, and 10.77% are government, i.e. sovereign bonds. 

Among the top 10 largest issues in the portfolio are US Government notes and bonds, as well as Canadian, Brazilian, Peruvian, Spanish, and Colombian energy sector bonds, and an Indian mining company.

Franklin Limited Duration Income Trust

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Stock #2 : Franklin Limited Duration Income Trust (NYSE: FTF)

Yield: 11.86% 

Shares for $10,000: 1,605

Monthly Dividend Amount: ~$98.83

Franklin Resources offers one of the largest catalogs of mutual fund varieties in the world, and was an early pioneer of mutual funds dating back to its post-WWII origins. While Franklin has expanded to have acquired Templeton, Legg Mason, Putnam, and other financial firms, it has successfully maintained its standards of solid investor returns and common sense and prudent money management for over 75 years.

Based in San Mateo, CA, the Franklin Limited Duration Income Trust is a closed-end, fixed income mutual fund that invests in a mix of mortgage or asset -backed securities, floating rate bonds, and high-yield (‘junk” rated) corporates. The $394 million AUM has a relatively conservative risk mitigated portfolio allocation strategy for an income focused fund. As of March, 2024, roughly half of the bonds being held were B or lower, 22% were investment grade, and 20% were unrated. 

Blackstone Strategic Credit 2027 Term Fund

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Stock #3 : Blackstone Strategic Credit 2027 Term Fund (NYSE: BGB)

Yield: 11.48%

Shares for $10,000: 848

Monthly Dividend Amount: ~$95.66

One of the biggest complaints among current smartphone users is the inherently built-in obsolescence of each model. Regardless of whether it functions fine or not after 4-5 years, an announcement will inevitably come via email or text that support for your model’s operating system will be terminated, thus forcing you to get the latest model. The Blackstone Strategic Credit 2027 Term Fund was created with a similar limited lifespan in mind, which, in this case, is scheduled to dissolve on or about September 15, 2027. 

Since its inception and during its remaining time left, this specialized $897 million AUM fund from BlackStone, the largest asset manager on the planet, has performed well, delivering solid monthly dividends as per its mandate to maximize income. Invested solely in fixed income instruments ranging from senior to high-yield corporate bonds, the fund also utilizes derivatives, leverage, repos, reverse repos, credit-linked notes, and foreign currency hedging to both enhance returns and aid in risk mitigation.

The fund benchmarks its portfolio performance against a composite index comprising 75% S&P/LSTA Leveraged Loan Index and 25% Barclays US High Yield Index.

PIMCO Corporate & Income Strategy Fund

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Stock #4 : PIMCO Corporate & Income Strategy Fund (NYSE: PCN)

Yield: 10.57%

Shares for $10,000: 788

Monthly Dividend Amount: ~$88.08

One of the basic principles of bonds and other fixed-market instruments is that the lower the rating, the higher the yield, ostensibly due to the inherent perceived risk of default. Higher safety equates to a higher rating, and a subsequent lower yield.

Newport Beach, CA headquartered Pacific Investment Management Co. (PIMCO) is able to pull a rabbit from its hat by generating double digit yields while concurrently maintaining a balanced risk portfolio.  Its PIMCO Corporate & Income Strategy Fund is a closed end bond mutual fund that is yielding over 10.5% at the time of this writing, on a portfolio that most analysts would view as conservative and safe.

A look at the Pimco Corporate & Income Strategy Fund’s $768 million portfolio allocation shows that as of April 2024, 18.43% of bonds were AAA, 10.57% were AA, 8.96% were A, 26.23% were BBB, 18.07% were BB, and the remaining 17% was B or below. That’s an astonishing nearly 63% of the portfolio being investment grade. If risk tolerance is a looming factor in making investment decision changeovers towards passive income generation, this is one to keep on the list.

Reaves Utility Income Fund

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Stock  #5 : Reaves Utility Income Fund (NYSE: UTG)

Yield: 8.66%

Shares for $10,000: 380

Monthly Dividend Amount:~$72.16

Specialized sector mutual funds are often an excellent way for investors to get some of the benefits of an industrial sector on a prorated basis without the higher costs of admission and the additional responsibilities that may entail, for example, investing in brick and mortar real estate.

The utilities sector is one that many investors prefer for defensive purposes, meaning, when the economy takes a downturn, it will maintain its business and pricing well due to their indispensability. Sectors like food, healthcare, and utilities all fall into that basket, and the Reeves Utility Income Fund is a good example of the last one cited. It invests mostly in global stocks that are in the utilities sector.

Alongside shares in electric and gas utility stocks, Reaves Utility Income Fund’s portfolio also includes many telecom stocks as well. As a balanced fund, besides buying stocks in the utilities sector, this fund also invests in debt securities issued by utility companies. Although the fund uses a moderate amount of leverage to enhance returns, last year’s leverage totaled just 21.44% of total assets. The low-volatility nature of the utilities sector may also help to mitigate risk. 

With head offices in Jersey City, NY, Reaves Utility Income Fund has a $2.6 billion warchest. Its portfolio’s top three largest holdings as of April 2024 were Deutsche Telekom AG (OTC: DTEGY) – 4.92%, NiSource, Inc. (NYSE: NI) – 4.59%, and Entergy Corp. (NYSE: ET) – 4.46%.

Rivernorth Managed Duration Municipal Income Fund Inc.

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Stock #6 : Rivernorth Managed Duration Municipal Income Fund Inc. (NYSE:RMM)

Yield: 8.50%

Shares for $10,000: 688

Monthly Dividend Amount: ~$70.83

The Rivernorth Managed Duration Municipal Income Fund Inc. is a closed end fund that specializes in municipal bonds, which are Federal tax free, and depending on the state and bonds being held, may also have city and state tax exemptions as well. 

Based in Chicago, IL, the $520 million fund holds municipal bonds or cash exclusively. The municipal bond rating breakdown as of April, 2024 is: AAA (2.14%), AA (51.11%), A (23.37%), BBB (14.34%), BB (1.49%), and 8.15% unrated. 

Regardless of one’s tax bracket, the Rivernorth Managed Duration Municipal Income Fund can be a good source of passive dividend income. However, if the extra cumulative $7,000+ annual earnings from these or similar stocks were to bump one up to the next tax bracket, it can be a helpful tax mitigation tool to consider. 

Any type of stock portfolio is subject to change due to news events or market circumstances. Dividend paying stocks are no different, but news that can affect dividend payment amounts or payout dates need to be regularly monitored, especially if those dividends are being relied upon for regular expense payments.