Beware of Wall Street wisdom now more than ever. Especially when it comes to the most commonly quoted maxim for retirement: its based on a rule that was never designed for times like these!
Enter the Dividend Death Spiral
Im talking about the so-called 4% rule, which says you should sell 4% of your nest egg every year in retirement.
Sounds simple, right?
Trouble is, it slashes your income stream and caps your upside in one go! Its especially dangerous advice to follow in a downturn like the one were experiencing.
Lets say, for example, you owned $200,000 worth of Johnson & Johnson (JNJ) shares, which pay $3.80 in dividends on an annualized basis, for a 2.9% yield. Lets also say you were slated to sell 4% of your holdingor $8,000 worthon February 5, when the stock hit an all-time high of $154. To get your $8K back then, youd have had to sell 52 shares.
With 52 shares gone from your account, your dividend income drops by $198. Plus, youve got 52 fewer shares to appreciate in the future. Its the worst of both worlds!
Now imagine what would happen if you had to sell last Thursday morning, only a bit more than a month later:
The Worst Kind of Market Timing
JNJs dividend is still fine, but the stock cratered 19% from its February 5 high to last Thursday morning. So now youd now have to unload far more shares (64, to be exact) to get your $8K.
That puts an even harder cap on your future gains and slices your yearly income even more: by $243. Get hit by a few pullbacks like that and youre well on your way to running out of money in retirement!
And you and I both know that these crashes are far from uncommon. In fact, if the chart above looks familiar, thats because it is: JNJ last followed the S&P 500 down the drain a year and a half ago, in late 2018:
JNJs Last Dividend Death Spiral Wasnt Long Ago
Your Return: From Sketchy to Serene
Luckily, theres a better way than Wall Streets flawed 4% approach. It involves moving more of our return away from wild stock charts like JNJs and toward a huge monthly cash stream that grows over time:
Swap This Wild Ride
For a Smooth Cash Stream Like This
That second chart belongs to a closed-end fund (CEF) called the PIMCO Dynamic Credit and Mortgage Income Fund (PCI). As I write, this bond fund, run by one of the biggest, and savviest, CEF shops out there, yields an eye-popping 10.8%. Thats 3.5 times the payout on JNJ and 4.5 times the 2.1% the typical S&P 500 stock pays.
It gets better: as the chart above shows, that huge payout has grown 11.4% in the last decadeand youd have gotten way more than that, thanks to the huge special dividends (represented by the big blue spikes) PCI sends out yearly.
The capper? PCIs dividend comes your way monthly, not quarterly.
High monthly payouts give you something our beleaguered JNJ investor can only dream about: flexibility. If youre relying on your portfolio to pay your bills, PCIs monthly payouts line up nicely. And if youre diverting some, or all, of your dividend cash back into your nest egg, monthly payouts let you do that faster.
Think about that for a moment: its the opposite of the 4% rule. Your reinvestments grow your upside potential and, with more shares in your account, your dividend stream grows, too. And thanks to PCIs huge 10.8% payout, each additional share boosts your overall income a lot more than buying JNJ, with its ho-hum 2.9% payout.
Putting It All Together
Heres the power of reinvesting PCIs monthly payout: on a total-return basis (including dividends), the fund has nearly doubled the markets gain since I recommended it to my Contrarian Income Report members in May 2016, returning 62% to the markets 32%.
PCIs cash stream helps steady the fund, too: back in 2018, it didnt fall nearly as far as the market, thanks in large part to its continuing dividend payouts:
PCIs Dividend Makes the Difference
PCI is just one of the picks in my Contrarian Income Report portfolio, which is throwing off an outsized 9.9% average dividend yield as I write this. And many of the stocks and funds inside yield much more, like one real estate investment trust (REIT) paying an incredible 12.4% now.
And get this: this smartly run companys dividend has doubled in the last five years alone.
A 12.4% dividend that doubles? Its one example of the kind of picks youll find in Contrarian Income Reports portfolio, stocked with 17 funds and stocks. And today, with everyone losing their heads, is the perfect time to buy.
So today I want to give you instant access, starting with
5 Pullback-Proof Dividends (up to 9.8%) You NEED to Buy Now
Ill start by handing you my very best portfolio buys for these panicked times: 5 stout stocks and funds I refer to as pullback-proof.
These 5 buys trade at attractive discounts now, and they yield an incredible 8.5%, on average. The highest payer of the bunch throws off a massive 9.8% payout!
Heres how a payout like that gives you an extra level of safety: nearly 10% of your initial buy boomerangs back to you every year in dividends, so if you simply let that cash accumulate, it will slowly offset your portfolios stock-market risk, adding a growing amount of ballast every year.
After 10 years, youll have recouped all of your investment in dividend income alone. Everything else is gravy!
Thats the definition of safety, and I cant wait to share these 5 cash-rich dividend-payers with you now. Ill also give you full access to my complete 17-stock Contrarian Income Report portfolio (average dividend yield: 9.9%!) with no risk and no obligation whatsoever.
Dont deny yourself the peace of mind (and high income) you need in these worrying times. Go right here and Ill give you my full safe-investing plan, complete access to my 17-stock Contrarian Income Report portfolio and the names of my 5 pullback-proof dividends.