Dividends are a beautiful thing. I mean who doesn't want to get paid every month for simply owning a stock? Especially if it means an extra $1,000 in income every month.
Before we dive into the numbers, let's first understand what a dividend is.
Basically, dividends are a company's way of saying thank you to its investors by paying them with some of their earnings. The dividend yield is the amount paid out per share relative to the stock price.
Using the example above, if a company has a 5% yield and the share price is $100, each shareholder would receive $5 over the course of a year. The more shares you own the more you would receive.
Now let's see how easy or difficult it would be to make $1,000 per month in dividends.
First, let's figure out the yearly amount needed. $1,000 multiplied by 12 months equals $12,000 per year.
Next, we need to figure out how much we need to invest to get this amount. W would take the yearly amount and divide it by the dividend yield. If a company has a 4% dividend yield, we would divide $12,000 by 4%.
That would mean that we would need to invest $300,000 in this company to receive $1,000 per month in dividends.
Here are some examples from our favorite dividend aristocrats - companies that have constantly raised dividends every year for 20+ consecutive years.
Moral: it takes a lot of money to make $1,000 per month in dividends.
But don't let that dissuade you from investing. You know what is required, you just have to slowly build your portfolio to get there.
Start with a goal of $10 per month in dividends. Invest consistently and build a holding to meet your goal. Then move to $100 per month in dividends. Then $500 per month. Before you know it, you will be making $1,000 per month and be on your way to financial freedom.
Three things should be noted.
1. The natural instinct would be to find a company with a high yield and put all your money into that company. Chasing dividend yield is not a great way to invest. A high yield may not be sustainable over the long term.
2. The dividend payout ratio should also be taken into account. This ratio is the total amount of dividends paid out relative to the net income of the company. A high ration, anything above 50%, may not be sustainable.
3. You can mix and match stocks to meet this goal as well. Let's focus on this one.
Companies usually pay dividends quarterly. Each company pays their shareholders in different months. If you choose companies that pay in different months, you can time it so that you get paid $1,000 per month in dividends.
Let's use TD Bank, AbbVie and Broadcom. These three companies fit this strategy perfectly.
TD Bank pays dividends in January, April, July and October. AbbVie pays out in February, May, August and November. And Broadcom in March, June, September and December.
So, how much of each is required? Instead of looking for $12,000 in dividends from each stock, we now are trying to obtain $4,000 per year.
With TD's 3.80% yield, it would require $105,263 invested to receive $4,000, or $1,000 in those four months.
With AbbVie's 4.86% yield, it would require $82,305 invested to receive $4,000, or $1,000 in those four months.
With Broadcom's 2.85% yield, it would require $114,000 invested to receive $4,000, or $1,000 in those four months.
All together, it would require $301,568 in total capital to receive $1,000 per month in dividends from these three companies.
There you have it - that's what it takes. Remember it's a long term game and don't compare someone else's journey to yours. Keep investing and you will be able to live off your passive income one day.
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Disclosures
I am not a licensed financial advisor or financial professional. This is not investing advice. I am simply sharing my research and opinion based on that research. It is very important that you do your own research and make investments based on your own personal circumstances, preferences, goals and risk tolerance.
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