BTAFF - Earn 8% And Growing Income From 2 Dividend Stocks One Undervalued
2024-03-23 09:00:00 ET
Summary
- Income from investments becomes more important as you approach retirement age, and closing the gap between investment income and spending needs is crucial for financial freedom.
- Reinvesting the income from high dividend yield stocks can help grow your dividend income a lot faster, as well as compound your capital over time.
- We write about two wonderful dividend stocks that would provide an average of 8% plus stable dividend income for the foreseeable future. One of them is high quality, while the other one is highly undervalued.
We are writing this article as part of a 12-part series, usually with a monthly article, where we will suggest two high-income dividend stocks each time. Over the course of the year, we hope to have roughly 25 such stocks and a portfolio with 8% sustainable income. A million-dollar invested in such a portfolio should generate $80,000 of income on an annual basis. Here is the link to our previous article in this series.
Who Should Seek Income and Why?
Income is critical for most retirees. But is it all that important for other investors? Sure, if you have already saved $5 million or more, there are other ways to generate income for your living expenses. However, the vast majority of folks do not fall into that category, so income is important for them. To categorize, we will simply go by the age groups:
- Age 35 (or under): For this group of investors, a more relevant question would be if you are saving and investing enough. In most situations, income is not important, and they should invest a minimum of 15% of their monthly income regularly and in long-term buy-and-hold investments.
- Age 36-45 years: For this group, investment income starts gaining some importance but can vary widely based on the situation. If you are in a job or business that is not highly secure, you should start investing in a way that your investments also generate regular income. Since you do not need income in a normal situation, you should reinvest that income automatically and let the income and the capital compound. We will explain what we mean by compounding of income. If, by any chance, you end up in a situation where you do need income from your investments, all you have to do is stop auto-reinvesting. More than likely, this income may not be enough for all of your basic expenses at this stage of your life, but coupled with emergency cash saved, it will go a long way in helping with your situation and not force you to sell your investments to raise cash.
- Age 46-55 years: This is the right time for you to start transitioning from non-income investments to income investments. Doing this transition should not mean compromising on growth. In fact, income investments should provide a similar compounding of growth when you are reinvesting all of the income.
- Age 56 and above, and retirees: We should invest 75% (or above) of our capital in dividend and income stocks, and some of them could be high-income. This can go up to 90% as you are ready to retire.