How to Build $6,950 a Month in Dividend Income Without Owning a Single REIT
Generating over $83,000 a year in dividend income sounds like a job for REITs, but seven completely different asset classes can get you there at a fraction of the capital you might expect.
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A monthly income of $6,950 totals $83,400 a year. This article explains how much capital it takes to generate that income without owning any real estate investment trusts. The money comes from seven other sources: dividend equity, covered calls, preferred shares, a telecom carrier, a midstream energy partnership, and two business development companies (BDCs). BDCs lend to private middle-market firms and must pass most of their income through to shareholders.
The math rests on one equation: income divided by yield equals capital required. Treasuries set the floor for comparison. The 10-year yield is now 5.3%, so anything that yields more than that carries equity, credit, or distribution risk.
What Each Yield Tier Costs at $83,400 a Year
Conservative Tier: Around 3.3%
iShares Core High Dividend ETF (NYSEARCA:HDV) yields roughly 3.3% and charges 0.08% a year. At that yield, an $83,400 investment at 0.033 produces about $2.5 million. You need the most capital here, and you get the most room for growth in return. Over the past 10 years, the fund’s adjusted price rose 147%.
Moderate Tier: 6% to 7%
Three holdings sit in this level, and iShares Preferred and Income Securities ETF (NASDAQ:PFF) yields about 6.0% on a forward basis. Verizon (NYSE:VZ | VZ Price Prediction) and Enterprise Products Partners (NYSE:EPD) each yield about 6.2%. At a 6% yield, $83,400 divided by 0.06 equals $1.39 million.
Payouts at this level grow slowly. Verizon raised its quarterly dividend to $0.7075. Enterprise lifted its distribution 3% year over year and covers it 1.9x with distributable cash flow. Preferred shares offer little price upside: PFF’s price is down 1% over the past year.
Aggressive Tier: 10% to 12%
NEOS S&P 500 High Income ETF (CBOE:SPYI) yields about 12.0%. Both Ares Capital (NASDAQ:ARCC) and Capital Southwest (NASDAQ:CSWC) yield near 10.0%. With a 10% yield, $83,400 invested at 0.10 produces $834,000.
The higher yield comes with credit risk. Ares Capital’s net asset value per share slipped from $19.94 to $19.35, and non-accruals rose to 2%. Capital Southwest holds a portfolio that is 99% first-lien senior secured. SPYI writes calls against its stock holdings, which caps gains in strong markets.
Combining All Seven Into One $83,400 Portfolio
Weighted by the allocation below, the portfolio yields 7.7%. That means you’d need about $1.08 million in capital.
| Holding | Weight | Yield | Capital | Annual Income |
|---|---|---|---|---|
| HDV | 20% | 3.3% | $216,623 | $7,149 |
| SPYI | 20% | 12.0% | $216,623 | $25,995 |
| ARCC | 15% | 10.0% | $162,468 | $16,247 |
| PFF | 15% | 6.0% | $162,468 | $9,748 |
| CSWC | 10% | 10.0% | $108,312 | $10,831 |
| VZ | 10% | 6.2% | $108,312 | $6,715 |
| EPD | 10% | 6.2% | $108,312 | $6,715 |
Overall, this portfolio with SPYI and the two BDCs makes up 45% of the capital and produces more than half of the income.
Why the Smallest Yield Can Win Over a Decade
Ares Capital has paid $0.48 every quarter since early 2023. SPYI’s monthly payout went from $0.4755 in January 2023 to $0.5338 recently. Both are reliable payers, and neither has grown much.
By comparison, if HDV’s $7,149 slice grew 8% a year, it would reach about $14,290 in nine years. Fund the full target through HDV at the same growth rate, and it would grow from $83,400 to roughly $166,700. The combined mix gives up that compounding in exchange for needing about $1.44 million less capital upfront.
Run your own version of that compounding on the HDV slice:
Steps to Take Before Building This Portfolio
- Model your after-tax income. BDC distributions are taxed mostly as ordinary income, Enterprise sends unitholders a K-1, and covered-call payouts have their own tax treatment. Your $6,950 gross could shrink a lot depending on your bracket and account type.
- Check net asset value per share at Ares Capital and Capital Southwest every quarter. If NAV keeps falling while the dividend holds steady, the payout may be using up into capital.
- Compare how income would change over time if you reinvested part of the SPYI and BDC payouts into HDV during the first few years. Gradually shifting money toward a growing payer can build a slice of income that offsets inflation.
Contact [email protected] for any questions or corrections.
David Beren has been a Flywheel Publishing contributor since 2022. Writing for 24/7 Wall St. since 2023, David loves to write about topics of all shapes and sizes. As a technology expert, David focuses heavily on consumer electronics brands, automobiles, and general technology. He has previously written for LifeWire, formerly About.com. As a part-time freelance writer, David’s “day job” has been working on and leading social media for multiple Fortune 100 brands. David loves the flexibility of this field and its ability to reach customers exactly where they like to spend their time. Additionally, David previously published his own blog, TmoNews.com, which reached 3 million readers in its first year. In addition to freelance and social media work, David loves to spend time with his family and children and relive the glory days of video game consoles by playing any retro game console he can get his hands on.
