2 Great Picks To Reach $2 Million In Retirement

Co-produced with Treading Softly.

I am a “facts and details-oriented” person. I like things to be precise and correct. As such, I have long struggled when people present a vague or nebulous idea for a project, goal, or future plan.

I love the idea behind SMART goals. These are action-based, timed, and measurable goals. When I entered the workforce, my goals were consistently down-to-earth, and I zeroed in on my long-term focus.

I maximized my monthly sit-down meetings with my supervisor to achieve my desired outcome and goals. It allowed me to rapidly climb the ranks in my career while many of my peers stagnated. They didn’t know what they wanted, didn’t know how to get there, and felt uncomfortable expressing their desires. Everyone wants to “make more money,” but few know how they want to do that.

I remember when I started working at one employer. They had all of the new hires stand in a circle and state a long-term career goal. Many said, “Become the CEO,” which elicited laughs as we all knew that was extremely unlikely. When it became my turn, I simply said I wanted to earn enough to retire early. I received silent looks of shock. People felt it was more unlikely to retire early than become the CEO before we all left that workplace because no one felt they knew how to achieve that goal. They deemed it impossible.

I can tell you no one in that group is the CEO, at least not yet. Best of luck to those in that group still striving to become CEO! They hired someone from outside the company when the last CEO retired – go figure! While I don’t work there anymore, many consider me to be semi-retired, working for myself, the CEO of my own company. I achieved the retirement goal and their CEO goal in many ways. Win-win!

So how did I achieve it? Diligent income investing. I bought high-yield, strong income-paying investments and sprinkled in investments with growing dividends. I could walk away from a secure corporate job and take the risk of running my own business because I had the security of an income to fall back on.

The issue with a goal based strictly on money is it often is a nebulous goal. So you have $2 million, so what? Most who earn and save that amount without an ongoing plan to maintain or grow it will be afraid to spend any of it.

I view monetary goals as similar to “being” goals, as I call them. A goal like “I want to be rich” is a poor goal, as “being” is a state of existence, not a measurable outcome. I strongly recommend focusing on income-based goals – “I want to earn $80,000 annually in retirement.” Such goals are lasting, measurable, and can be evaluated on an ongoing basis.

Whether your goal is $2 million in portfolio value or $80,000 in annual income, these two picks can help you achieve it.

Let’s dive in!

Pick #1: GHI – Yield 7.7%

Greystone Housing Impact Investors LP (GHI), the company formerly known as America First Multifamily (ATAX), had a spectacular year in 2022. It raised its regular dividend by 12% and paid out supplemental dividends on top of that, totaling $0.50. This happened in a year when many bond funds struggled to maintain their payouts.

GHI’s core business is investing in MRBs (mortgage revenue bonds). These are bonds issued by state housing agencies to encourage the development of affordable housing. This is the segment of GHI’s portfolio that generates tax-exempt income. Like all debt investments, this segment of GHI’s portfolio saw declining values in 2022 as interest rates climbed.

The main driver of GHI’s success last year was its “Vantage” joint venture. GHI invests with a partner to develop new apartments. After construction, the properties are leased up and then sold to other investors. While the lease-up phase is sometimes cash-flow positive, the real gain comes when the property is sold. Last year, several of these properties were sold, and that is what funded the supplemental dividends.

Not even two weeks into the year, we discover properties are still being sold at significant gains. Vantage at Stone Creek and Vantage at Coventry were both sold in the first week of 2023. These sales generated $0.51/unit in Cash Available for Distribution. In other words, over 1/3rd of GHI’s annual distribution was generated in the first week of the year. A great way to start the year and a very strong indicator that we could see some more supplemental dividends in 2023.

Here is a look at GHI’s list of properties in the Vantage JV. Source

GHI has two more completed properties that will be sold when they lease up and another five properties that are currently under construction, keeping the pipeline full for next year.

In 2022, GHI’s core business was pressured by rising rates, but the success of the Vantage segment more than made up for any weakness. In 2023, we’ve seen a recovery in debt investments coming into the year, and it is very likely that the Fed will be less hawkish than last year, even if they don’t pivot.

In 2023, we now know that GHI’s Vantage segment has already booked significant gains for the year. As the Fed backs off and debt investments recover, GHI’s MRB business could see a strong rebound as well. We enjoyed holding GHI when one segment of its business was hitting a home run. This year, we get the opportunity to see both major segments outperform.

Note: GHI issues a K-1 at tax time.

Pick #2: DMLP – Yield 11.8%

Dorchester Minerals, L.P. (DMLP) is a partnership that primarily invests in oil & natural gas royalty rights. DMLP earns passive income that is based on the production and price of commodities for the acreage where it owns the royalty rights. Since commodity prices are volatile and production amounts can vary as well, the income that DMLP has each quarter is dependent upon variables that are not within the company’s control. Changes in the prices of oil and gas will cause changes in the distribution.

DMLP announced its fourth quarter distribution at $0.884339/unit. A decline from $1.14 in Q3, but the market took it in stride, and DMLP is trading near long-term highs. The market expected a decline because, as we pointed out last quarter, oil would need to head back to $100+ to maintain that lofty payout.

Unless oil spikes back up, we can expect DMLP’s quarterly payouts to be in the $0.80s. We are happy to hold and collect double-digit yields, but we have trimmed the buy-under price to reflect the likelihood that the distribution could trend down a little more. We will add more only if it dips. With oil prices stabilizing, we will not chase the price up.

Note: DMLP issues a K-1 at tax time.

Conclusion

With GHI and DMLP, we receive high income from two unique sources. GHI benefits from tax-free income and the selling of construction projects. DMLP pays out excellent royalty income in a structure to produce zero UBTI.

One is best held in a taxable account – GHI – and the other is entirely IRA friendly – DMLP.

As an investor, I view my portfolio like a company and each holding like an employee. I pay a set amount for them and I can trade them out at a value determined by the market, but they produce income for my company so long as I hold them. DMLP and GHI have been producing outsized income for my retirement and helping me meet my goals.

Often portfolio management is not about finding a single stellar investment but finding multiple excellent investments and knowing how to mix and match to gain the benefits of multiple streams of income while covering the bases of any drawbacks they present. Embrace the mindset of “both/and” instead of “either/or.”

You can succeed in your retirement, but it requires planning and forethought. Set actionable and measurable goals. Track your progress. Retirees need to have goals for how much income they need to live on – leave extra in case the unexpected arrives and attempts to derail your plans! Be prepared, and you’ll be successful. You can easily reach $2 million in retirement savings by holding excellent income generators like GHI and DMLP, along with others!