• Discounts and special offers
  • Subscriber-only articles and interviews
  • Breaking news and trending topics

Already a subscriber?

By signing up, you accept Moneywise's Terms of Use, Subscription Agreement, and Privacy Policy.

Not interested ?

Dividends are the key

Investing in dividend stocks is tricky, but if you find the right ones you could strike the perfect balance between reliable passive income and long-term capital appreciation. If the underlying company is growing and dividends are increasing over time, you could beat inflation with passive income. This wouldn’t be possible with a fixed-rate savings account or bond.

However, plain vanilla dividend stocks aren’t enough in this environment. The average dividend yield of the S&P 500 is currently hovering between 1.52% and 1.58% — far below the rate of inflation and, for that matter, the yield on a 10-year Treasury. That’s why investors need to seek out niche dividend stocks to achieve financial freedom in 2023 and beyond. Here are the top three strategies.

1. Dividend Aristocrats

To understand why dividend aristocrats are special, you need to understand how dividends are generated.

Companies have two choices with excess cash left over after meeting all their operational requirements: reinvest or reward. Either the cash is deployed back into the company to fuel growth or it’s handed back to shareholders as a reward for their patience and capital. Most companies either reinvest all cash into growth or pay all excess cash in dividends which keeps the stock price stagnant.

However, the companies on the Dividend Aristocrats list do both and have managed to consistently for over 25 years, which indicates that not only are they profitable, they're expanding. For investors looking to preserve their purchasing power through periods of high inflation, this is especially important.

If that sounds appealing, funds like the ProShares S&P 500 Dividend Aristocrats ETF (NOBL) deserve a closer look.

2. High-yield REITs and mortgage REITs (mREITS)

Real estate investment trusts (REITs) are designed to generate income from collecting rents on a portfolio of properties and pay out a minimum of 90% of taxable income as dividends. In other words, it’s an easy way to get real estate exposure.

REITs such as Realty Income (O) offer monthly payouts and exposure to high quality properties. This REIT currently offers a 5.9% dividend yield.

Typically, REITs generate income from collecting rents. But there’s another type of fund that generates income from collecting interest payments on mortgages. These are known as mortgage REITs or mREITs. In an environment of rising interest rates, these niche funds could be just as attractive.

The iShares Mortgage Real Estate Capped ETF (REM) and VanEck Mortgage REIT Income ETF (MORT) are perfect examples of this niche financial instrument. They offer dividend yields as high as 9.6%.

3. Covered call ETFs

Another niche financial instrument that could supercharge your dividend investing is covered call ETFs. These funds hold a portfolio of traditional stocks and generate income by writing call options against them. Writing a call option means you let traders in the market pay a premium for the right to buy the stock at a future date and a fixed price.

This strategy is (theoretically) low risk because most options are never exercised. That means the fund manager gets to keep the premium. Even if the call option is exercised, the fund is compensated for the value of the share and retains the premium that was paid upfront.

Funds like the Global X Nasdaq 100 Covered Call ETF (QYLD) offer dividend yields as high as 12%.


This 2 Minute Move Could Knock $500/Year off Your Car Insurance in 2024

Saving money on car insurance with BestMoney is a simple way to reduce your expenses. You’ll often get the same, or even better, insurance for less than what you’re paying right now.

There’s no reason not to at least try this free service. Check out BestMoney today, and take a turn in the right direction.

Vishesh Raisinghani Freelance Writer

Vishesh Raisinghani is a freelance contributor at MoneyWise. He has been writing about financial markets and economics since 2014 - having covered family offices, private equity, real estate, cryptocurrencies, and tech stocks over that period. His work has appeared in Seeking Alpha, Motley Fool Canada, Motley Fool UK, Mergers & Acquisitions, National Post, Financial Post, and Yahoo Canada.


The content provided on Moneywise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.