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Passive income is the dream for many investors, providing a steady stream of cash without the need for active involvement. Dividend stocks have long been a popular choice for those seeking to generate passive income, but are they truly the best option? In this article, we’ll explore the appeal of dividend stocks and examine three alternative options that could potentially offer even better returns.
The Appeal of Dividend Stocks
Dividend stocks provide investors with regular income in the form of quarterly or monthly payouts and the potential for capital appreciation if the stock price rises. Popular choices among dividend investors include AT&T Inc. (NYSE:T) and Pfizer Inc. (NYSE:PFE).
AT&T is known for its high yield, with a forward dividend yield of 6.30% and an annual payout of $1.11 per share. However, the company’s dividend growth has stalled in recent years, with a 5-year CAGR of -6.16% and no dividend increases in the past year.
Pfizer, on the other hand, offers a forward dividend yield of 6.07% and an annual payout of $1.68 per share. The company has a strong track record of dividend growth, with 13 consecutive years of increases and a 5-year CAGR of 4.59%. However, Pfizer’s payout ratio of 116.20% suggests that the current dividend may not be sustainable in the long run.
Despite their attractive yields, dividend stocks are not without their drawbacks. They are vulnerable to market volatility, and a declining share price can negate the returns earned through dividends. For example, AT&T’s stock price is down roughly 27.5% over the past five years, resulting in a total return of only 7% during that period. Similarly, Pfizer’s stock price has dropped approximately 32% over the past five years, leading to a total return of -16.5%.
Alternative Passive Income Options to Consider
While dividend stocks can be a reliable source of passive income, they are not the only option available to investors. In fact, exploring alternative investments can help diversify your portfolio and potentially provide even higher returns. Here are three alternative passive income options worth considering:
Fractional Real Estate Ownership
Arrived is a groundbreaking platform that allows investors to buy shares in rental properties with minimal capital, making real estate investing accessible to a broader audience. Backed by Jeff Bezos, Arrived has a proven track record of success, with over $161 million in assets under management and an average annual dividend yield of 4.2%.
One of the key advantages of investing through Arrived is the low entry point. With a minimum investment of just $100, anyone can start building a diversified real estate portfolio and earning passive income from rental properties. Arrived’s user-friendly platform and expert property management team make the process simple and hassle-free, allowing investors to sit back and watch their investments grow while collecting monthly rental income.
Real estate has long been considered a hedge against stock market volatility and Arrived makes it easier than ever to add this valuable asset class to your portfolio. By investing in rental properties through Arrived, you can enjoy the benefits of real estate ownership without the responsibilities of being a landlord.
Click here to explore investments currently available on the Arrived platform.
Private Credit Through the Ascent Income Fund via EquityMultiple
The Ascent Income Fund from EquityMultiple offers an attractive opportunity for accredited investors interested in earnings higher yields from private credit investments. With a historical distribution yield of 12.1%, this fund focuses on senior positions in commercial real estate loans, providing investors with the potential for substantial income.
The Ascent Income Fund is designed for investors who understand the risks and rewards of private credit investing. By targeting senior positions in commercial mortgages, the fund aims to mitigate risk while still providing attractive returns. And with a reduced minimum investment of $5,000 for first-time investors, the fund is now more accessible than ever.
EquityMultiple’s experienced team of real estate professionals carefully selects and manages the fund’s investments, ensuring that each opportunity is thoroughly vetted and aligns with the fund’s objectives. With a focus on capital preservation and quarterly liquidity options, the Ascent Income Fund is an intriguing option for investors seeking to diversify their passive income streams.
Private Credit Through the Private Credit Fund from Arrived
For non-accredited investors looking to tap into the private credit market, Arrived’s Private Credit Fund offers an exciting opportunity. With a target yield of 7% – 9% and a low minimum investment of just $100, this fund makes private credit investing accessible to a wider range of investors.
The Private Credit Fund from Arrived invests in short-term loans that are used to finance professional real estate projects, such as property renovations, rehabs, or new home construction. These loans are secured by residential housing, providing an added layer of protection for investors. The fund’s focus on residential real estate and its diversified portfolio of loans help to mitigate risk while still offering the potential for attractive returns.
One of the key benefits of the Private Credit Fund is its monthly dividend payouts, which provide investors with a steady stream of passive income. And with quarterly liquidity options, investors have the flexibility to access their capital if needed. For those who don’t meet the requirements to be an accredited investor, Arrived’s Private Credit Fund offers a unique opportunity to participate in the private credit market and potentially earn higher yields than traditional fixed-income investments.
Comparing Dividend Stocks and Alternative Options
When considering passive income investments, it’s essential to understand the different risk levels and potential returns associated with each option. Dividend stocks may offer more liquidity, but alternative options like fractional real estate ownership and private credit funds can potentially provide higher yields.
Diversification is also crucial when building a passive income portfolio. By spreading your investments across different asset classes and strategies, you can minimize risk and ensure a more consistent income stream.
While dividend stocks like AT&T and Pfizer remain a solid option for generating passive income, they are not the only game in town. Fractional real estate ownership and private credit investments can offer compelling alternatives with the potential for higher returns and greater diversification.
Take the time to investigate these alternative passive income investments further, and consider how they might fit into your overall financial strategy. With the right approach and a well-diversified portfolio, you can work towards achieving your passive income goals and securing your financial future.
Learn more about each of these alternative income investments here:
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