Pursuing the highest dividend yield might seem like the quickest path to a monthly payment of $9,600—$115,200 annually. However, the calculations reveal a somewhat surprising pitfall: you could end up with less income in a decade compared to someone who opted for lower yields.
To achieve that $9,600 monthly dividend without selling any shares, it’s crucial to understand the amount you need invested. The portfolio must generate enough distributions to cover the full annual amount. So, it’s essential to grasp the capital requirements at different yield levels, along with a six-fund portfolio based on actual payout data.
Three Yield Levels, Three Price Points
Conservative: 3% to 4%
If you take a conservative approach, dividing $115,200 by 0.035 suggests you’d need around $3,291,000. This strategy generally involves funds that focus on dividend growth and reputable payers. A good example is the iShares Core High Dividend ETF, which currently has a forward yield of approximately 4.2% and a low expense ratio of 0.08%. You’ll want a substantial investment upfront, but both income and principal are likely to grow. Over the past year, HDV appreciated by 29%.
Moderate: 5% to 7%
Opting for a moderate approach means you’d be calculating based on a yield of around 6%. This implies needing about $1,920,000. At this level, you’d likely invest in REITs, preferred stocks, and covered call funds. For example, Realty Income has a yield near 5.7%, the iShares Preferred and Income Securities ETF offers about 6.6%, while the JPMorgan Equity Premium Income ETF yields roughly 7.2%.
However, keep in mind that the income growth at this level tends to be sluggish. Realty Income recently marked its 136th dividend increase, with payouts rising from $0.2275 in December 2019 to $0.2715 today. Meanwhile, PFF has seen its price decline by about 1% over the last five years, and preferred shares are influenced by the current interest rates with the 10-year Treasury hovering around 5%. The payouts from JEPI fluctuate monthly—$0.34 in October compared to $0.45 in May.
Aggressive: 8% to 14%
If you’re ready to take a more aggressive stance, aiming for a yield of around 10% means you’d need approximately $1,152,000. Starting with the JPMorgan Nasdaq Equity Premium Income ETF yielding near 11.6%, and adding Blue Owl Capital Corporation, which offers about 12.3%, would help reach this figure. It’s worth noting that Blue Owl recently reduced its base dividend from $0.37 to $0.31, and there’s been a decline in the net asset value per share.
Six Funds, A $1.49 Million Investment Plan
This portfolio, using the allocation outlined below, yields approximately 7.7%, indicating that an investment of around $1,490,000 is necessary to derive $115,200 annually.
| Fund | Weight | Investment ($) | Forward Yield | Annual Income ($) |
|---|---|---|---|---|
| JEPI | 20% | $298,000 | 7.2% | $21,500 |
| JEPQ | 15% | $224,000 | 11.6% | $26,000 |
| O | 15% | $224,000 | 5.7% | $12,800 |
| OBDC | 15% | $224,000 | 12.3% | $27,500 |
| HDV | 20% | $298,000 | 4.2% | $12,500 |
| PFF | 15% | $224,000 | 6.6% | $14,900 |
JEPI and Blue Owl contribute about 30% of the total investment, generating the largest income streams. Note that these yields reflect current payouts annualized; they will fluctuate over time.
Why Lower Yields Might Be More Beneficial
Consider that a portfolio yielding 3.5% with an 8% annual growth rate can see income balloon to around $230,000 in nine years. Meanwhile, a static 12% payout continues at $115,200, but that indicates no growth. The situation with Blue Owl illustrates how quickly distributions can diminish.
Examining five-year price performance reveals similar patterns: HDV surged by 86%, Blue Owl climbed just 22%, and PFF fell about 1%. The high-yield options might deliver immediate income, while the growth-oriented investments help maintain purchasing power in the long run.
Three Actions Before You Create This Portfolio
- Begin with your actual spending. Calculate your annual expenses. If you need, say, $7,500 a month, it could dramatically reduce the capital you need by hundreds of thousands.
- Test-run the high-yield portion. Re-evaluate the portfolio under scenarios like Blue Owl’s recent dividend cut or a weak month for JEPQ. Keeping several months’ worth of distributions in cash can prevent you from needing to sell shares due to a dip in payouts.
- Align each fund with the appropriate account type. The distributions from REITs, BDCs, and covered call funds are typically taxed as ordinary income. By 2026, single filers will face a 24% tax rate on income exceeding $105,700, while joint filers will hit that threshold above $211,400. Strategically placing these funds in IRAs while keeping HDV in taxable accounts can help you retain more of that $9,600.
