Mar 9, 2023
A million-dollar retirement portfolio is certainly nice to have as you approach your golden years. But what if you don’t have so much saved up and are playing catch-up?
Well, there are still ways to replicate that millionaire income stream.
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According to the 4% rule, retirees can comfortably withdraw 4% from their retirement savings each year without running out of money during retirement.
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If you have a $1 million portfolio, that amounts to $40,000 a year.
Now, if you have a portfolio of just $500,000, you can still generate $40,000 a year of passive income — but you’ll need to find stocks that pay out an average 8% yield in annual dividends.
The 4% rule is not bullet-proof and dividends are not carved in stone. All things equal, a higher dividend yield typically comes with higher price risk or lower growth prospects.
But if you are set on earning oversized dividends of above 8%, here’s a look at three that Wall Street analysts like.
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Plains All American Pipeline
With strong oil and gas prices over the past year, producers have been making money hand over fist. But when it comes to returning cash to investors, midstream operators also deserve a look.
Check out Plains All American Pipeline (PAA), a master limited partnership with an extensive network of pipeline gathering and transportation systems. The partnership says that its goal is to “increase its distribution to Unitholders over time through a combination of organic and acquisition-oriented growth.”
Indeed, management raised PAA’s quarterly distribution by 21% to $0.2175 per unit last year. Earlier this year, they increased the quarterly payout by another 23% to $0.2675 per unit.
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At the current unit price, the stock yields a generous 8.1%.
Goldman Sachs analyst Michael Lapides has a ‘buy’ rating on PAA and a price target of $16 — implying a potential upside of 21% from the current levels.
Read more: Here are 4 easy alternatives to grow your hard-earned cash without the shaky stock market
Enviva
The renewable energy sector has attracted a lot of investor attention in recent years. But there are still intriguing stocks within the space that aren’t household names.
Enviva (EVA) is the world’s largest producer of wood pellets, a renewable energy source that’s a low-cost, drop-in replacement for coal. As countries around the world implement stricter renewable targets, Enviva should see no shortage of demand.
Currently, Enviva’s backlog of revenue from contracts it is working to fulfill stands at $21 billion.
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The company is also returning a generous amount of cash to investors. Paying quarterly dividends of $0.905 per share, Enviva yields 9.8%.
Raymond James analyst Pavel Molchanov has a ‘strong buy’ rating on Enviva and a price target of $65 — around 77% above where the stock sits today.
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Office Properties Income Trust
As the name suggests, Office Properties Income Trust (OPI) owns a lot of office buildings — its portfolio consists of 160 properties totaling 21 million square feet.
This real estate investment trust hasn’t been a market favorite. Over the past 12 months, OPI shares have tumbled 39%.
But there is something that makes the company stand out: it has a quarterly dividend rate of 55 cents per share and an annual yield of 14.6%.
Moreover, the REIT has quite a few high-profile tenants, such as the U.S. government, Google parent company Alphabet, and Bank of America.
B. Riley Financial analyst Bryan Maher has a ‘buy’ rating on OPI and a price target of $27. Since shares trade at around $15 today, the price target implies a potential upside of 80%.
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Jing is an investment reporter for MoneyWise. He is an avid advocate of investing for passive income. Despite the ups and downs he’s been through with the markets, Jing believes that you can generate a steadily increasing income stream by investing in high quality companies.
