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The lure of dividend investing is increasing as beginner investors want to protect their savings against inflation and market volatility. Data from S&P Global shows the S&P High Yield Dividend Aristocrats outperformed the S&P Composite 1500 and S&P 500 High Dividend Index during down markets. But the benefits of dividends go beyond just surviving market downturns. Many investors are funneling their money wisely into dividend stocks to create wealth and become financially independent.
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In August 2022, a dividend investor shared his fascinating success story on /Dividends, a Reddit discussion board for income investors. The investor said years ago he was extremely poor and, at one point, homeless. But then he changed his mindset about money and started stashing away small amounts to invest.
“I started with nothing – actually less than nothing – was homeless at one point and owed the IRS 50k. I just changed my way of thinking about money and started saving; my first goal was 10k,” he said.
The investor shared screenshots of his portfolio, which showed that his investments were earning about $4,800 per month in dividends or $57,751 per year.
Starting With a ‘Single Hundred-Dollar Bill’ to Invest
The story received an outpouring of responses on Reddit, drawing comments of appreciation and questions. Answering a question, the investor said he started investing in 2013 and increased his focus on dividend stocks in 2016-2017.
“I started with a single hundred-dollar bill out of a paycheck. I swear on my kids I was homeless and penniless 10 years ago. I made myself a self-made millionaire by changing the way I thought about money and super-saving, working a regular hourly wage job. It can be done; it wasn’t easy but possible,” he added.
Living Below Means to Increase Wealth?
The investor, who said he was a heavy equipment operator, was repeatedly asked how he saved up for the initial investment.
“Basically chased every opportunity to increase my earnings: better jobs, side jobs, tons of OT and saved every penny – living below my means and saving/investing the difference. If you make a million dollars a year but spend 999,000, you’ll never have money. If you make 100k a year but can live off 30k and save the rest, you’ll be rich. It’s just a matter of time – you can apply that principle to any salary,” he replied.
The Key Role of Oil Stocks
However, the investor did not reach a significant dividend income portfolio just by scraping together pennies and cutting costs. His total portfolio value jumped thanks to his wise investments in energy stocks. He “doubled down” on oil stocks because of his long-term investment thesis:
“My thesis that people were crazy thinking we could stop using oil and go green that fast seems to be working. I still believe there are years and years of high energy prices in our future for the time being. I’m pro-green – as in the color of money green. When it’s time to switch I will.”
‘I Was On a Mission’
The investor said to save money for investments he worked 80 hours a week and made every effort to reduce his costs. He said he invested about $2,000 per month at the start.
“I worked 80 hours a week at the beginning: my real job, side jobs, etc. I was on a mission.”
The investor urged fellow Redditors to live below their means. That, according to him, does not necessarily mean you become a “nut penny pincher” but you should watch your spending and have a goal in mind.
“I see it every day in my own extended family – they need that Mercedes SUV so everyone thinks they’re a big shot or the huge colonial house that costs 900k mortgaged to the hilt.”
The investor said his total dividend portfolio value was in the mid-$600,000 range. When asked multiple times about his stock holdings, he said his portfolio consisted of just four individual stocks.
MPLX LP (NYSE:MPLX) is a publicly traded master limited partnership (MLP) with a dividend yield of about 8.6%. The company owns and operates midstream energy infrastructure and logistics assets. Last month, the company increased its dividend by a whopping 12%. The company will distribute about $3.9 billion annually. Its distributable cash flow averages around $5.6 billion per year. Despite rising dividends, MPLX has an attractive distribution coverage.
Talking about MPLX, the dividend investor earning $4,800 per month commented (keep in mind that this was two years ago):
“MPLX has been a winner for me although there’s not much upside left I believe at 33 it was nice to buy at 11 bucks circa 2020.”
Today, the stock is trading at about $44. It has gained about 23% in the past year.
Energy Transfer
Energy Transfer LP (NYSE:ET) is a popular dividend stock on Reddit. With a dividend yield of about 8%, the company is relatively insulated from the volatile commodities market since most of its revenue comes from fee-based contracts.
The investor earning $4,800 per month in dividends said that Energy Transfer LP (NYSE:ET) was among his two biggest stock holdings. He also talked about doing short-term trades around the stock:
“I also do short-term trades using margin and options. Example: in June I believed Oil would rise again by fall, so I bought 10k units of ET at 10 bucks on margin and held till this week, selling at 12 bucks for a 20k profit.”
Plains All American Pipeline
Plains All American Pipeline, L.P. (NASDAQ:PAA) is another high-yield MLP dividend stock in the investor’s portfolio, raking in $4,800 per month. The Texas-based company is engaged in pipeline transportation, terminating, storage and gathering of crude oil and natural gas liquids in North America. The stock has a dividend yield of about 7.8%.
Last month, Morgan Stanley analyst Devin McDermott downgraded Plains All American Pipeline, L.P. (NASDAQ:PAA) to Equal Weight from Overweight, citing limited catalysts for return on capital and a relatively flat EBITDA growth profile.
AbbVie With a current dividend yield of 3.2%, AbbVie Inc. (NYSE:ABBV) was a key stock in the investor’s portfolio earning $4,800 per month. The stock has gained about 42% over the past year. AbbVie has raised its dividends for 50 consecutive years.
The current interest rate environment has created an incredible opportunity for income-seeking investors to earn massive yields, but not through publicly-traded REITs.
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