Investors are always looking for income generating assets to increase their net worth. This is true especially as you start to get closer to retirement age and want income generating assets to take the place of your workplace compensation.
If you are investing in income producing assets via a dividend stock portfolio that is a great start. But the stock market S&P index yields just 1.6%. So you may need to consider other income generating assets to boost you monthly income.
This increased monthly income will give you the financial freedom you deserve.
We want to explore how to go about boosting your dividend income in a safe manner. And we want to give some specific examples of income producing assets for you to consider as an investment.
Before making any investment, you need to make sure these characteristics are present for any business that you invest in:
As mentioned above the average S&P stock is yielding 1.6%, which is not that attractive for an investor seeking income generating assets. Often to make up for these low average yields on stocks, investors will blindly pick stocks with the highest yields.
This can often lead to disastrous results because often times those high yields are not sustainable. Or to say it another way to say it is those high yields are a possible indicator of a future dividend cut. Take a very close look at any common stock investment yielding more than 4% for safety.
But there are two areas of common stocks where higher yields are normal: utility companies and real estate investment trusts. Given that these two industries tend to be slower growing, most utilities and real estate investment trusts offer a safer high yield to attract your investment dollars.
One of our favorites is Exelon.
Exelon is an electric utility in the United States with more than $30 billion in revenue and 30,000 employees. Most of all for investors looking for income producing assets is the fact that it currently yields more than 3.7%, more than twice that of the average S&P index stock. And Exelon has increased its dividend each of the last five years.
Exelon’s dividend appears safe as its payout ratio (dividend per share divided by earnings per share) is a reasonable 50%.
Our favorite real estate investment trust is Realty Income
Realty Income is the bluest of blue chips stocks when it comes to investing in publicly held real estate companies. Realty Income Corporation is a real estate investment trust that invests in free-standing, single-tenant commercial properties in the United States, Puerto Rico, and the United Kingdom that are subject to triple net leases.
Best of all for investors seeking income producing assets, Realty Income currently yields a safe 4.6%. And as the logo indicates Realty Income’s annual dividend is divided into twelve monthly installments, instead of the usual quarterly payments.
Have you considered preferred stocks to boost the annual return of your income generating portfolio?
Owners of a company’s preferred stock get paid first before any dividends are paid to common stock shareholders. So if you are looking for dividend safety, preferred shareholders are first in line as it relates to shareholders.
Preferred shares generally offer a higher dividend yield than a company’s common stockholders receive. But preferred shares pay a fix dividend rate and do not participate in dividend increases like common shareholders get.
Holders of REIT preferred stock tend to have higher yields than preferred shares of other industries, so they are attractive. Look for a REIT preferred stock first if you want to buy shares of individual companies that offer preferred shares to the market
For all but the most experienced stock investors I would recommend investing in preferred shares via an index fund or exchange rated fund like iShares US Preferred ETF (ticker PFF).
It has a low expense ratio of .46%. With over 3 million shares traded daily it is very liquid so you can buy and sell shares without significantly impacting the share price. Current yield is 5.5%.
Often when investors are investing their personal capital their investment portfolio is filled with stocks and maybe a certificate of deposit. But certificates of deposit are rather unattractive these days with the low interest rates they offer.
Investors can boost the income generated from their investment portfolio by investing in debt of high-quality companies. Principal and interest payments to debt holders are ahead of preferred and common stockholders, which is attractive.
By investing in debt, you do not participate in the upside if the company does well like a common stockholder does (because you only get repaid the stated amount of the debt). But if your main goal is to maximize income now from your income generating assets, investing in debt is a safe way to get more income out of your personal finance dollars invested.
Other than for the most experienced investors, we would not recommend investing in specific company bonds. Like preferred shares above we would recommend investing in company bonds via an exchange rated fund like Vanguard’s intermediate Term Bond Fund (ticker VCIT).
VCIT is a diverse $42 billion bond fund. It is managed by the well-respected Vanguard Group. Current yield is approximately 3.1%.
Get more from your income generating assets by becoming a landlord:
Have you ever thought of buying real estate to rent out?
This is a great way to build real wealth if you are savvy enough to pick the right properties and carefully screen tenants.
Recent studies estimated that there were over 40 million rental homes in the United States. A lot of that is large rental complexes owned and operated by large corporations. But a lot of that is also individuals and families owning one or two rental properties and building wealth over time.
You need to ask yourself if you’ve got the skills and time to be a landlord. Can you do repairs yourself? Can you do the needed fix up to a property before you rent it out? Can you ask people for money when they are late with their payments?
If the answer to these questions is yes, then you can build real wealth by putting some of your investment dollars into owning real estate directly and being a landlord.
Let’s say you want to invest in real estate, but you are not ready to be a landlord. One way to get into real estate investing is through small incremental investments in real estate crowdfunding.
Real estate crowdfunding investment became possible when legislation titled Jumpstart our Business Startups Act (“JOBS Act”) became effective in May 2016.
Prior to that date if you wanted to invest in private real estate transactions you had to be considered “accredited”, which meant you had to meet certain net high net worth or annual income requirements.
With the new legislation, smaller investors are now allowed to make a real estate investment that was never previously possible through crowdfunding. As a result, a new niche industry was born around crowdfunding of real estate transactions.
Now with crowdfunding real estate you are able invest a relatively small amount in certain large private transactions that previously would have been off limits. When done well this type of investing will allow you to get attractive annual returns on your investment over time from these real estate deals
In many ways, owning a piece of a real estate crowdfunding transaction is like owning stock in a company.
In both cases you are the partial owner, and the management team is required to disclose to you certain information about the health of the business from time to time. This allows the investor to track the progress of their investment to help assure things are going well.
If this new form of real estate investing sounds attractive, you can find recommendations for real estate crowdfunding companies in other articles on our Wealthplicity website.
In Summary:
All dividend portfolios may need a boost from time to time to generate additional income.
If you are going to try and increase your income, be sure to do it in a safe manner so that you are not taking on undue risks.
Use the examples described in this article as a starting point to get the additional income desired in a safe manner.
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