How much money do you have to save to retire comfortably? The amount will vary from person to person. However, we can make some assumptions based on averages.
For example, the median household income in the U.S. was $70,784 in 2021, according to the U.S. Census Bureau. The average annualized Social Security benefit for retirees this year is around $21,411. There's a gap of $49,373 between the two figures.
Generating that much money will require a significant amount of money in your retirement account. But you can get pretty close with less retirement savings than you might think. Want over $45,000 in retirement income? Invest $500,000 in these seven high-yield dividend stocks.
The magnificent seven
We can categorize these magnificent seven high-yield dividend stocks into three groups: energy stocks, real estate investment trusts (REITs), and other.
Energy stocks
Three energy stocks can help you make a lot of money in dividend income during your retirement years:
- Devon Energy (DVN 0.82%) is a leading oil and gas producer. The company has paid a dividend for 30 consecutive years. Its dividend consists of two components -- a fixed portion and a variable portion that's based on excess free cash flow.
- Enbridge (ENB 0.78%) is a major midstream energy company that transports 30% of North America's oil and delivers 20% of its natural gas. The company has increased its dividend for 28 consecutive years.
- Enterprise Products Partners (EPD 0.54%) is another leading midstream energy company that operates over 50,000 miles of pipeline plus other facilities including 29 natural gas processing plants. The company has increased its distribution for 24 consecutive years.
Real estate investment trusts
One great thing about REITs is that they must return at least 90% of their income to shareholders as dividends to be exempt from paying federal taxes. Two REITs have especially juicy dividend yields right now:
- Easterly Government Properties (DEA 0.26%) leases properties primarily to mission-critical federal agencies. Roughly 97% of the company's total lease income is backed by the full faith and credit of the U.S. government.
- Medical Properties Trust (MPW 1.81%) leases properties to hospital operators in 10 countries including the U.S. and sometimes provides other financing to its tenants. Over 86% of its total base rent and interest renews after 2032.
Other
The last two of our seven high-yield dividend stocks are in other sectors:
- Ares Capital (ARCC 0.79%) ranks as the largest publicly traded business development company (BDC). It provides financing to middle-market companies, focusing primarily on the larger businesses in this group. Ares Capital has more than 13 years of stable to increasing dividends. It has also generates significantly higher total returns than the S&P 500 since its initial public offering in 2004.
- Verizon Communications (VZ -1.04%) is one of the top telecommunications companies in the U.S. It provides wireless services to consumers and businesses. Verizon has increased its dividend for 16 consecutive years.
How they can make you over $45,000
Can investing $500,000 spread equally across these seven stocks really make you over $45,000 in dividend income? Yes. The following table shows how.
| Stock | Dividend Yield | Annual Income |
|---|---|---|
| Ares Capital | 10.58% | $7,557 |
| Devon Energy | 10.34% | $7,386 |
| Enbridge | 6.84% | $4,886 |
| Enterprise Products Partners | 7.66% | $5,471 |
| Easterly Government Properties | 7.6% | $5,429 |
| Medical Properties Trust | 14.06% | $10,043 |
| Verizon Communications | 6.86% | $4,900 |
| Total | $45,672 | |
Data source: Google Finance. All dividend yields as of May 3, 2023. Table created by author.
It is important to know, however, that the possibility exists that one or more of these companies could reduce their dividends. Devon Energy is especially susceptible to dividend cuts because the variable component hinges on excess free cash flow that fluctuates as oil prices change.
Some investors could also worry that Medical Properties Trust might have to reduce its dividend because of financial difficulties for some of its tenants. As of now, though, the hospital REIT believes that it can continue paying its dividend at current levels.
Of course, several of these companies could also increase their dividends. Those with long track records of dividend hikes, particularly Enbridge and Enterprise, could be highly motivated to keep those streaks going.
An unlucky number?
Many people consider seven to be a lucky number. But for investors, it might not be. Why? Owning only seven stocks doesn't provide the level of diversification that most financial advisors would recommend.
Yes, investing $500,000 in these seven high-yield dividend stocks could and should make you more than $45,000 in retirement income. However, it's wise to lower the risk of catastrophic losses by spreading your money across a higher number of stocks. Even if doing so reduces your dividend income, it could help you sleep more peacefully.
Keith Speights has positions in Devon Energy, Enterprise Products Partners, and Medical Properties Trust. The Motley Fool has positions in and recommends Enbridge. The Motley Fool recommends Easterly Government Properties, Enterprise Products Partners, and Verizon Communications. The Motley Fool has a disclosure policy.
