2 Big Dividends That Work As Hard As You – Seeking Alpha

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Fresh out of college, you are excited to take up the responsibilities of adult life and gain some real-world experience. Before you know it, you are part of the rat race, pursuing a routine of trading your time for money. Your entire working life is associated with an exhausting, repetitive lifestyle that leaves almost no time for your hobbies, relaxation, or enjoyment.

I can think of two broad reasons why people work (for an employer):

Financial independence - most of us work to earn a living, pay bills, food, and entertainment, and save for retirement.

Passion - if you are actually passionate about what you do, congratulations! Less than 20% of the U.S. workforce claims to be passionate about their jobs.

Life expectancy in the U.S. is on the rise, which means your savings must last longer. But does that add more years to your work life? The Bureau of Labor Statistics says yes. The number of workers ages 75 and older is expected to increase by 96.5% over the next decade. Remember what Warren Buffett has taught us:

"If you don't find a way to make money while you sleep, you will work until you die." - Warren Buffett

91-year-old Mr. Buffett belongs to the passionate 20%, he loves his work, and we all want to learn as much as we can from him. If you belong to the 80% who only work to earn and sustain a living, why not use your savings to generate paychecks? Not only does this provide a recurring paycheck with minimal effort on your part, but it also lets you spend time with your family and pursue your hobbies.

Investing for income, a time-tested path to financial freedom is more accessible than ever today. Anyone with a brokerage account can do it, and all it takes is a diversified portfolio of over 40 dividend-yielding securities. This article discusses two picks with yields up to 7.4% to amplify your passive income. With a portfolio of such securities, you will have sufficient income never to have to work again. Without further ado, let us dive into these picks.

For over 50 years, PIMCO has helped millions of investors pursue their objectives despite shifting and unpredictable market conditions. This world-class CEF manager known for their fixed-income generation through active management is currently managing 25 CEFs globally with over $14 billion in Assets Under Management.

PIMCO Dynamic Income Opportunities Fund (NYSE:PDO) is by far the best performing CEF in PIMCO's portfolio in 2021. Per PIMCO's October report, PDO's Net Investment Income ('NII') covered its distributions (rolling three months) by an impressive ~160%, the highest among all PIMCO CEFs.

PIMCO's top 5 outperformers

PIMCO

Investors should note that PDO was born in February 2021, when quality yields were scarce, and short-term rates were near zero. As such, PIMCO was quite conservative in setting its yield during inception (7.1% @ its $20 IPO price) compared to older CEFs.

PDO's $0.1125/month calculates to a 7.4% annual yield today. The CEF earned more than its distribution through the year, and shareholders received a $0.49/share special dividend in December. Including this distribution, the net annualized yield comes to a whopping 9.8%! PIMCO has a solid track record of rewarding shareholders, and the infant PDO has proven to be no exception.

65% of PDO's debt securities will mature within five years, with almost 33% having maturity durations of less than one year. This means the fund is highly resistant to rising rates. In fact, as rates rise next year and beyond, PDO's holdings will mature and release capital for deployment into new debt securities that yield more.

PIMCO

PDO's first birthday is approaching, and you are invited to the party. The CEF is currently trading at par with its NAV - a rare opportunity for PIMCO CEFs, which typically trade at healthy premiums due to the brand value and trust that the firm carries.

Y-Charts

With higher rates on the horizon, PDO may see a minimal impact in the short term and is at an advantage in the longer term. Investors will see high NII in excess of distributions and more special dividends. PDO is priced at a bargain today, and this sale won't last.

When was the last time you saw Big Tobacco advertise in a major sporting event? McLaren's red and white Marlboro decals are all anyone could relate to until Formula One banned tobacco companies from advertising in 2006.

Fifteen years later, British American Tobacco (NYSE:BTI) (also known as BAT) is back with a bang in Formula One with its dazzling papaya orange and cobalt blue branding, promoting its Vuse vapor device.

Instagram

BTI has been aggressively rebranding its image to the younger audience, spending over 1 billion on social media influencers, pop stars, and sporting events to promote their lung-friendly e-cigarettes and nicotine pouches. The campaigns are producing results. BAT reported a 142% increase in social media followers (vs. 1H 2020), and its new category products - Vuse, Velo, Glo are massively popular among the millennial and generation Z population worldwide. The company saw an influx of 3.6 million customers in the first nine months of the year, more than 2020 as a whole, thanks to a rise in demand for its vaping, heated tobacco, and oral products. BTI's total non-combustible user base stands at 17.1 million, and the company expects this segment to contribute to the profit growth for the first time this year.

Given new category revenue was under 7% as of 1H 2021, investors may wonder how the majority of BTI's business is performing. This is where BTI shines. Due to its balanced geographic exposure to developed, emerging, and developing markets, BTI projects 5% YoY top-line growth. The company reported a growing volume of cigarette sales in Indonesia, Bangladesh, and Pakistan, where a significant percentage of the adult population smokes combustible products. So a segment that is the pariah of the market, with competitors reporting declining sales, continues to be a growing cash cow for BTI.

BTI also stands ahead of the pack when looking at valuation, profitability, and the dividend. It is the cheapest, most profitable, and yields the highest. Its modest payout ratio ensures the 7.1% dividend is sustainable and can grow over time.

Data Source: Y-Charts

Please note: BAT's distribution varies due to the fluctuation in the USD-GBP currency exchange rates.

In the past 12 months, BTI earned $3.75/share, a 10.1% total return off which they distributed 7.1% to shareholders.

BTI's Vuse e-cigarette range is now a global leader in market share in the top five vaping markets in the world. The company is on track to hit its target 5 billion revenue from non-combustibles by 2025. The company is aggressively transforming its social image, and the efforts are paying off. Growing top-line influence of non-combustibles, a socially acceptable product segment will warrant an improved valuation from Sir Market. You get paid to wait for this transformation to happen, with a growing dividend stream and significant capital gains.

Getty

Life is short, and everyone desires to retire early. No one wants to spend 40 hours a week for thirty to forty years working for someone else unless they are actually working on something they are passionate about. Instead, wouldn't you spend more time with friends and family and pursue activities that give you joy. But we get it; no one wants to lose the comfort and predictability of a paycheck.

With income investing, you can have your cake AND eat it too. The strategy provides you with the comfort of sustainable and growing paychecks while giving you plenty of time to focus on your personal life.

This article discusses two picks with yields up to 7.4%. At HDO, our Income Method is built on the premise of getting your retirement under your control. We have a portfolio of over 45 high-quality income picks with strict allocation limits, targeting a yield between 9-10%. We issue timely buy/sell alerts so you can spend time on your hobbies. Diversification and allocation limits improve the sustainability of the income and reduce the shock from individual entities. High yield ensures you make enough to sustain your retirement while staying ahead of rising costs, volatile markets, and other economic conditions. We let the power of dividends help us pursue our passion and achieve new heights.

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2 Big Dividends That Work As Hard As You - Seeking Alpha