Work smarter, not harder, the adage tells us. One way to do that is with passive income, which is derived from ownership rather than labor or active involvement in an enterprise. One of the best ways for investors to create a stream of passive income is by owning mutual funds and exchange-traded funds with healthy and dependable dividends.
We screened our 24/7 Wall St. dividend equity research database, looking for funds that pay generous dividends. We found seven that combined can generate over $5,000 a year in passive income for an investment of $5,000 in each fund.
Abrdn Income Credit Strategies Fund
- Fund: Abrdn Income Credit Strategies Fund (NYSE: ACP)
- How many shares for $5,000: 740
- Dividend yield: 17.9%
- Annual passive income: $995.00
This closed-ended fixed-income fund was launched and managed by Aberdeen Asset Managers and is co-managed by Aberdeen Standard Investments. The fund invests in fixed-income markets across the globe, primarily in loan and debt instruments. It was formed on October 12, 2010, and is domiciled in the United States. The monthly dividend has held steady since September of 2020. Shares are down fractionally year to date and have underperformed the S&P 500 since 2019.
CBRE Global Real Estate Income Fund
- Fund: CBRE Global Real Estate Income Fund (NYSE: IGR)
- How many shares for $5,000: 994
- Dividend yield: 14.2%
- Annual passive income: $710.00
This fund specializes in investments in various property types, including office, retail, apartments, industrials, hotels, health care, and storage. It invests in the public equity markets globally and seeks to invest in stocks of companies with diversified market capitalizations operating across the sector, including real estate investment trusts (REITs). The monthly dividend has not been cut in the past decade. Shares are down more than 7% year to date, and they have also underperformed the S&P 500 since 2019.
Invesco Senior Income Trust
- Fund: Invesco Senior Income Trust (NYSE: VVR)
- How many shares for $5,000: 1,193
- Dividend yield: 12.5%
- Annual passive income: $625.00
This closed-ended fixed-income mutual fund invests in the fixed-income markets of the United States, primarily in a portfolio of interests in floating or variable-rate senior loans to corporations, partnerships, and other entities operating in a variety of industries and geographical regions. It was formed on June 23, 1998, and is domiciled in the United States. The monthly dividend has not been cut since 2019. Shares are up more than 2% year to date and over 5% higher than a year ago.
Nuveen Credit Strategies Income Fund
- Fund: Nuveen Credit Strategies Income Fund (NYSE: JQC)
- How many shares for $5,000: 934
- Dividend yield: 12.2%
- Annual passive income: $610.00
This closed-ended balanced mutual fund is managed by Symphony Asset Management. It invests in the fixed-income and public equity markets of the United States, primarily in senior secured and second-lien loans, preferred securities, convertible securities, and related instruments. The fund was formed on June 25, 2003, and is domiciled in the United States. The monthly dividend has not been reduced since 2021. Shares are up more than 3% year to date, while the gain for the S&P 500 is over 5% in that time.
Oxford Lane Capital
- Fund: Oxford Lane Capital Corp. (NASDAQ: OXLC)
- How many shares for $5,000: 961
- Dividend yield: 18.2%
- Annual passive income: $910.00
This close-ended fund invests in fixed-income securities, primarily in securitization vehicles that invest in senior secured loans made to companies whose debt is rated below investment grade or is unrated. It was formed on June 9, 2010, and is domiciled in the United States. The monthly dividend was last cut in 2020. Shares are up almost 7% year to date, outperforming the S&P 500, but they are about 10% lower than a year ago.
PIMCO Dynamic Income Fund
- Fund: PIMCO Dynamic Income Fund (NYSE: PDI)
- How many shares for $5,000: 263
- Dividend yield: 13.7%
- Annual passive income: $685.00
This is a close-ended fixed-income mutual fund launched and managed by Allianz Global Investors Fund Management and co-managed by Pacific Investment Management Company. It primarily invests in mortgage-backed securities, investment-grade and high-yield corporate bonds, developed and emerging markets corporate bonds, and sovereign bonds. It was formed on May 30, 2012, and is domiciled in the United States. The monthly dividend has remained steady since September of 2015. Shares are up more than 5% since the beginning of the year but have underperformed the S&P 500 for the past year.
RiverNorth Opportunities Fund
- Fund: RiverNorth Opportunities Fund Inc. (NYSE: RIV)
- How many shares for $5,000: 429
- Dividend yield: 13.0%
- Annual passive income: $650.00
The close-ended equity mutual fund was co-launched and is co-managed by ALPS Advisors and RiverNorth Capital Management. It seeks to invest in stocks of companies operating across diversified sectors. The fund was formed on December 24, 2015, and is domiciled in the United States. The monthly dividend recently increased. Shares are up about 6% year to date and more than 19% higher than the multiyear low seen last October.
$5,000 in Passive Income
So, for a $35,000 investment split evenly between these seven diverse funds, the investor creates a passive income stream of a little over $5,000 per year.
| Stock | Investment | Annual Income |
|---|---|---|
| ACP | $5,000 | $995.00 |
| IGR | $5,000 | $710.00 |
| VVR | $5,000 | $625.00 |
| JQC | $5,000 | $610.00 |
| OXLC | $5,000 | $910.00 |
| PDI | $5,000 | $685.00 |
| RIV | $5,000 | $650.00 |
| Total | $35,000 | $5,085.00 |
Is a $35,000 investment a little too rich? Note that a $1,000 investment in each fund results in annual passive income of about $1,000, while $2,500 investments net $2,500 per year, and so on.
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