I don't depend on my investments for income right now. Actually, I've never even paid much attention to how much my portfolio generates in annual income in the past. My practice has been (and still is) to reinvest any dividends or distributions I receive.
However, I recently decided to look at my investment income and was admittedly a little surprised. Here's exactly how I'll make over $18,000 in dividend income this year.
Exchange-traded funds
By far, the biggest chunk of my dividend income in 2023 will come from exchange-traded funds (ETFs). Although I love picking individual stocks, I'm also a big fan of ETFs. I currently own the following ETFs that pay dividends:
| ETF | Yield |
|---|---|
| Health Care Select Sector SPDR Fund (XLV 0.03%) | 1.58% |
| iShares Russell 2000 ETF (IWM 0.96%) | 1.51% |
| SPDR S&P MidCap 400 ETF (MDY 0.29%) | 1.3% |
| Vanguard 500 Index Fund ETF (VOO 1.00%) | 1.52% |
| Vanguard Small-Cap Value Index Fund ETF (VBR 0.37%) | 2.22% |
Data source for yields: Yahoo! Finance.
None of these ETFs pay especially high yields. Because I have a significant amount invested in them, though, they'll together generate nearly $7,800 in dividend income for me this year.
High-yield stocks
High-yield stocks rank as my second-biggest source of dividend income. The definition of high yield that I use, by the way, is 2x the yield of the SPDR S&P 500 ETF Trust -- the largest S&P 500 index ETF. Since SPY's yield currently stands at 1.47%, I consider any stock in my portfolio with a yield of more than 2.94% as "high."
It turned out that I have 14 stocks that meet that threshold. I won't list all of them, but they include:
| Category | Example | Yield |
|---|---|---|
| Energy stocks |
Enterprise Products Partners (EPD 0.45%) |
7.4% |
| Healthcare stocks |
AbbVie (ABBV -4.58%) |
4.2% |
| Real estate investment trust (REIT) stocks |
Innovative Industrial Properties (IIPR -0.17%) |
9.3% |
Data source for yields: Yahoo! Finance.
Combined, all of my high-yield stocks should make me around $5,200 in income in 2023.
Closed-end funds
I didn't become interested in closed-end funds (CEFs) until this year. These funds are similar to mutual funds in that they are actively managed. However, they can be bought and sold via brokerages just like a stock.
CEFs usually offer especially attractive yields. The three funds in my portfolio with the juiciest yields are:
| CEF | Yield |
|---|---|
| PIMCO Dynamic Income Opportunities Fund (PDO 1.17%) | 11.8% |
| DoubleLine Yield Opportunities Fund (DLY 1.26%) | 10% |
| Cohen & Steers Infrastructure Fund (UTF -0.69%) | 8.1% |
All of the CEFs that I own together should generate around $3,000 in income for me this year.
Other dividend stocks
I own several other stocks with yields that don't meet my high-yield threshold. Below are my three biggest positions in this group:
| Stock | Yield |
|---|---|
| Apple (AAPL -0.35%) | 0.5% |
| PepsiCo (PEP -0.62%) | 2.7% |
| Microchip Technology (MCHP 1.51%) | 1.7% |
Data source for yields: Yahoo! Finance.
Apple ranks as the biggest individual stock holding in my portfolio. Although the company doesn't offer a big dividend, it still provides a material amount of income for me.
Counting all of the "other" dividend stocks that I own, they should pay out dividends of nearly $2,200 in 2023.
Adding it all up
Summing up the amounts from my ETFs, high-yield stocks, CEFs, and other dividend stocks gives a total of over $18,000 in income this year. This doesn't include any income I'll receive from holding U.S. Treasurys.
Nearly half of the positions in my portfolio don't pay dividends at all. But the ones that do generate more income than I expected.
Is there any lesson for other investors with this personal exercise of mine? Maybe so. Consider that over the last 30 years, the S&P 500 grew around 10x excluding dividends. However, if you include dividends, the S&P's total return during the period was over 18x.
Pay attention to your dividends. They can really add up over time.
