MarsBars
MarsBars
The magic of having a $100,000 passive income snowball was emphasized by Charlie Munger when he said:
The first $100,000 is a *****, but you gotta do it. I don't care what you have to do - if it means walking everywhere and not eating anything that wasn't purchased with a coupon, find a way to get your hands on $100,000.
Reaching a $100,000 investment portfolio is a significant achievement because a portfolio at this point begins to generate substantial returns in the five-figure range at a 10% annualized rate of return, creating a self-sustaining wealth-building mechanism through compounding. Moreover, this compounding effect is particularly powerful with high-yielding dividend stocks, offering both income and potential capital appreciation without depleting the principal over time.
For example, if you generate a 7% dividend yield from a $100,000 portfolio, you will enjoy a $7,000 passive income stream, which is typically enough to cover 1-2 months of living expenses depending on the circumstances. In this article, we will provide a sample 7%-yielding $100,000 passive income snowball portfolio that incorporates the key dividend investing principles of:
Without further ado, here is the portfolio:
| Tickers | Amount | % Allocation | Yield |
| ENB | $ 5,000.00 | 5% | 7.5% |
| EPD | $ 5,000.00 | 5% | 7.0% |
| ET | $ 5,000.00 | 5% | 8.0% |
| O | $ 5,000.00 | 5% | 5.8% |
| MAA | $ 5,000.00 | 5% | 4.4% |
| SPG | $ 5,000.00 | 5% | 5.0% |
| BXSL | $ 5,000.00 | 5% | 10.0% |
| MAIN | $ 5,000.00 | 5% | 6.0% |
| BEP | $ 5,000.00 | 5% | 6.3% |
| BIP | $ 5,000.00 | 5% | 5.5% |
| JEPI | $ 18,000.00 | 28% | 7.6% |
| SCHD | $ 12,000.00 | 12% | 3.4% |
| PFFA | $ 20,000.00 | 20% | 9.5% |
| Total | $ 100,000.00 | 100.00% | 7.0% |
As you can see from the above table, the portfolio is divided into five sections:
The ETFs make up half of the portfolio, serving to provide it with an attractive combination of high yield and diversification while still giving it a bit of dividend growth. The JPMorgan Equity Premium Income ETF (JEPI) gives the portfolio exposure to mega-cap technology companies and several other large businesses that it wouldn't otherwise have exposure to without sacrificing yield. The Virtus InfraCap U.S. Preferred Stock ETF (PFFA), meanwhile, gives it a major income boost backed by a diversified portfolio of preferred equities that are actively managed skillfully as evidenced by the fund's track record of more than doubling the total return performance of the preferred equity segment (PFF) since the fund's inception. Finally, the Schwab U.S. Dividend Equity ETF (SCHD) finds a spot in the portfolio despite having a dividend yield that is less than half of its target due to its strong dividend growth track record to help balance out the lack of meaningful dividend growth from its two other ETF holdings.
The infrastructure holdings of Brookfield Infrastructure Partners (BIP) and Brookfield Renewable Partners (BEP) combine attractive dividend yields that are only slightly below the portfolio's overall target yield with mid to high single-digit expected distribution CAGRs. Moreover, these two companies combine very skilled management teams through their parent Brookfield (BAM)(BN) that have delivered exceptional long-term total returns for investors with defensive and durable business models, BBB+ credit ratings that illustrate the financial strength of the firms, and lengthy growth profiles, making them excellent inclusions in a passive income snowball.
The BDC holdings of Blackstone Secured Lending (BXSL) and Main Street Capital Corp (MAIN) both pay out well-covered dividends that have a track record of also growing at a solid clip. Moreover, MAIN's track record in the BDC sector is unparalleled as its internal management has done an exceptional job of growing dividends consistently along with book value per share as we recently detailed here. BXSL, for its part, combines the skilled external management of Blackstone (BX) with what is arguably the best all-around dividend in the BDC sector.
The REIT holdings of Realty Income (O), Mid-America Apartment Communities (MAA), and Simon Property Group (SPG) combine attractive and well-covered current dividend yields with very strong balance sheets, exceptional long-term outperformance relative to peers, and skilled management teams. Moreover, as a group, they provide investors with attractive diversification, with MAA being more inflation-resistant due to its short-term multifamily leases, O does better in falling inflation and lower rate environments due to its bond-like triple net leases, and SPG is a bit of a hybrid with its retail leases and semi-sensitivity to economic conditions.
Last, but not least, the midstream selections of Enbridge (ENB), Enterprise Products Partners (EPD), and Energy Transfer (ET) combine some of the safest 7%+ yields in the common equity space with substantial distributable cash flow coverage ratios, very strong balance sheets, stable cash flowing business models that are quite defensive and resistant to energy price volatility, and also have solid 3-5% expected distribution CAGRs for the foreseeable future. While not as cheap as they were a few years ago, each of these picks offers investors a very attractive combination of current yield and solid long-term growth prospects.
While he may no longer be with us, Mr. Munger's wisdom still is. A big part of that wisdom is the importance of having the prudence and discipline to amass a six-figure passive income snowball that can get the power of compounding working for you in a way that should generate five-figure annualized total returns.
In this article, we showed an example of how an investor can construct such a passive income snowball by implementing sound principles of dividend growth investing while maintaining adequate diversification and still generating a 7% dividend yield. These are the sorts of stocks that I am loading up on in my Roth IRA and 401k as I believe dividend-paying stocks are generally much easier to value than high-growth stocks. And the tax protections provided by holding these in a Roth are conducive to collecting dividends with my active approach to managing my portfolio with an opportunistic capital recycling strategy.