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Passive income is the dream of many investors because it provides a constant flow of cash without the need for active involvement. Dividend stocks have long been a popular choice for those looking to generate passive income, but are they really the best option? In this article, we’ll explore the appeal of dividend stocks and look at 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 payments 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 over the past year.
Pfizer, meanwhile, offers a forward dividend yield of 6.07% and an annual payout of $1.68 per share. The company has a strong history 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 term.
Despite their attractive yields, dividend stocks are not without their drawbacks. They are vulnerable to market volatility and a decline in share price can wipe out returns earned through dividends. For example, AT&T’s stock price is down about 27.5% over the past five years, resulting in a total return of just 7% over that time. Similarly, Pfizer’s stock price has fallen 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 you diversify your portfolio and potentially generate even higher returns. Here are three alternative passive income options worth considering:
Fractional real estate ownership
Arrived is a revolutionary platform that allows investors to purchase shares in rental properties with minimal capital, making real estate investing accessible to a wider audience. Backed by Jeff Bezos, Arrived has a proven track record, with over $161 million in assets under management and an average annual dividend yield of 4.2%.
One of the main 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 earn passive income through 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 via the Ascent Income Fund via EquityMultiple
THE Ascent Income Fund of EquityMultiple offers an attractive opportunity for accredited investors interested in higher returns from private credit investments. With a historic distribution yield of 12.1%, this fund focuses on senior positions in commercial real estate loans, providing investors with substantial income potential.
The Ascent Income Fund is designed for investors who understand the risks and rewards of investing in private credit. By targeting senior positions in commercial mortgages, the fund aims to mitigate risk while providing attractive returns. And with a reduced minimum investment of $5,000 for new 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 carefully considered and aligned with the fund’s objectives. With a focus on capital preservation and quarterly liquidity options, the Ascent Income Fund is an attractive option for investors looking to diversify their passive income streams.
Private credit via the Arrivé Private Credit Fund
For non-accredited investors looking to tap into the private credit market, Arrived’s Private credit fund offers an exciting opportunity. With a target return of 7% to 9% and a low minimum investment of just $100, this fund makes private credit investing accessible to a wider range of investors.
The Arrived Private Credit Fund invests in short-term loans that are used to finance professional real estate projects, such as property renovations, rehabilitations or the construction of new homes. These loans are secured by residential properties, providing additional protection to investors. The fund’s focus on residential real estate and its diversified loan portfolio help mitigate risk while providing attractive return potential.
One of the main advantages of the Private Credit Fund is the payment of monthly dividends, which provide investors with a constant stream of passive income. And with quarterly liquidity options, investors have the flexibility to access their capital when needed. For those who do not qualify 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 returns than traditional fixed income investments.
Comparing Dividend Stocks and Alternatives
When considering passive income investments, it’s essential to understand the different levels of risk and potential returns associated with each option. Dividend-paying stocks may offer more liquidity, but alternative options such as fractional real estate ownership and private credit funds can potentially offer higher returns.
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 aren’t the only option. Fractional real estate ownership and private credit investments can offer attractive alternatives with the potential for higher returns and greater diversification.
Take the time to study these alternative passive income investments in more detail and consider how they might fit into your overall financial strategy. With the right approach and a well-diversified portfolio, you can work toward achieving your passive income goals and securing your financial future.
Learn more about each of these alternative income investments here:
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