Can I Really Generate $10,000 a Year From $200,000? My Friend Says Dividends Are Stupid

Dividends are having a moment right now. Part of that could be that the market expecting the Federal Reserve to cut rates this month, which will send safe-haven investors back into equities in search of yield. But another reason could arguably be YieldMax returns. And it’s for this reason that people are getting some grand ideas about how much money they can make from this kind of investment strategy. 

This is why it’s no surprise that one Redditor posting in r/dividends is thinking about the different ways they can generate approximately $10,000 annually from a $200,000 investment. The thing is, the Redditor has friends who say this is a bad idea, but is it really? 

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The Redditor’s Strategy For Generating Income

According to the Redditor, their strategy of making $10,000 annually through a dividend strategy is “stupid,” at least that is what their friend says. The same “friend,” a term we should be using loosely, says that they should be going with a more traditional investment strategy. 

The thing is, this Redditor isn’t going all-in on dividends, isn’t planning to quit their job, and only wants to make enough to try and buy a slightly better home. In reality, they are talking about a 5% yield, which isn’t astronomically crazy in today’s dividend world — a statement that is even more true when you consider YieldMax ETFs like ULTY and MSTY are earning far more. 

As a result of what the Redditor sees as the potential from other individuals, they are wondering if their $10,000 strategy isn’t outrageous and how much in taxes they would have to pay. Look, when you consider that high-yield savings accounts are earning as much as 4.35% annually (EverBank), then the 5% yield number from dividends doesn’t sound as outrageous as it does as a standalone consideration. 

Dividends Are Not “Stupid”

I wish I could be this Redditor’s friend and tell them that not only is this strategy not “stupid,” but it’s actually something people have been doing for a long time. While dividends might be enjoying a moment thanks to the tariff craze and associated market volatility, there is something to be said for people earning dividends from names like Verizon (NYSE: VZ), Pepsi (NASDAQ: PEP), ExxonMobil (NYSE: XOM) and U.S. Bancorp (NYSE: USB) for decades. 

I would also absolutely love to tell this individual that while I would consult a tax professional as far as what they might owe when tax season begins, there is every reason to think this is an okay strategy. Better yet, in the comment section of this post alone, there are dozens of people acknowledging that they are making similar amounts of money with an investment contribution not too dissimilar from what the Redditor is considering with the $200,000 bankroll. 

The thing is, the friend isn’t wrong to think that growth stocks are a better financial play, but the key is that they are a better play “long-term.” Yes, you are going to get more than 5% on those stocks in the long-term, but that could be a 10-year play, whereas the Redditor is looking to build up a 5%-earning dividend portfolio tomorrow. 

Are You Comfortable With Risk? 

Before diving into the specifics of how this Redditor can actually make the money, they have to ask if they are comfortable with risks. These dividend plays currently come with a lot of risk, as you might receive dividend earnings, but the stock itself is volatile. 

This is especially the case with ULTY and MSTY, two of the biggest names in the YieldMax world right now. Yes, I would say to a friend that the returns here are big, much bigger than would typically be possible, but it comes with risk. If this were my friend, I also would tell them that there is inherent instability in the market right now between tariffs and trade, global conflict, and just uncertainty over the world’s economic situation in a year. 

Buying a home is a great goal, but the Redditor needs to come into this dividend world with eyes wide open. 

How to Make the 5% Dividend Yield

Unsurprisingly, Redditors are taking to the comments on this post with their take on how to make the requested 5% yield and $10,000 annual net. One method that is worth considering is dumping all $200,000 into JEPQ, which is JP Morgan, so there is a reliability factor here. With an actual dividend, you would be earning around $20,000 per year at 0.10 cents or $24,000 at 12 cents. It is taxed at a regular income level, so you’re looking at $12,600 and $15,120 at the highest tax bracket of 37%. 

Another method is to allocate $120,000 to JEPI and $80,000 to QYLD. You’re looking at $18,960 annually based on the current dividend and yield, but to offset erosion, consider holding some large-cap stocks like Verizon to balance your portfolio.

The bottom line: To make sure to look at investing in either dividend stocks, which is a great recommendation and one I would absolutely feel comfortable making. The alternative is to get into more balanced dividend-focused ETFs like QQQI or SPYI that are slightly safer, albeit more conservative in their strategies. 

I would also recommend reviewing your strategy regularly to make sure things are performing as they should. In addition, I’ll emphasize again the need to talk to a tax professional to understand any potential tax implications from the trading and investing taking place. 

It also wouldn’t hurt to continually reassess the specific financial goals that are needed to help get to the desired home purchase price. Is there a different strategy that could be more effective, and if so, does it carry less risk than entering positions with potentially strong NAV erosion that could quickly turn against you based on the market’s direction in one, two, or three months?