How much do you need to invest to get dividend income? • Save. Spend. Splurge. (2024)

This is a very generic chart. It shows you essentially, what you need invested, to get a certain income, and what the driving factors are — DIVIDEND YIELD.

What income you want / What dividend yield you are getting

=

How much you need invested

Example:

You want $25,000 a year.

You get 4.5% as a yield currently.

$25,000 / 4.5% = $555,555 is what you need invested to obtain that goal

(Math Note: 4.5% when inputted into a calculator is typed as: 0.045)

How much do you need to invest to get dividend income? • Save. Spend. Splurge. (2)

High, sexy, dividend yields above 6%, are very enticing. They’re so … HIGH. You need much less invested if you just invest in them, and get 6% right?

Well, yes and no.

Above 6%, you should be cautious for 2 reasons:

1. It may not be sustainable

A high yield means the company, every year, has to PAY IT OUT IN CASH to its investors.

If they’re promising a sexy 10% yield, this means 10% of their income, out of their free cash flow, has to be paid.

Does that sound sustainable? If the company isn’t rolling in the dough, it likely isn’t.

If it was sustainable, don’t you think they would be better off paying 5% dividends and using the other 5% to grow and invest in their own company?

Getting paid dividends is nice as an investor, but you don’t want to be locked into a company that can’t really sustain it.

You want to look for companies who have consistently paid out dividends over the years, and have consistently INCREASED those payouts as well.

It is one thing to pay dividends, it is another to consistently, over a long period, have increased that payout, and is confident they have the income and free cash to do so.

This is a lot like someone who increases their investments each time their salary takes an increase; instead of spending the money, they decide to increase their savings by 1%, then 1% again, and so on <— this is what you want to see, and generally speaking at above 6%, it is very rare if not.. impossible to do so.

Dividend yield is based off market price, so … if the stock and ergo company is not doing well, then I don’t see how they can pay out so much. It just isn’t rational.

How much do you need to invest to get dividend income? • Save. Spend. Splurge. (3)

2. The company may be doing it to lure you in

Caveat emptor.

A lot of companies that offer big, sexy dividends, are doing it to get you to put money into them.

That’s it. They offer you 10%, you can’t resist the lure, and BAM!… you’re invested.

But if the company over time, loses money they’ll either cut the dividends down to something more sustainable, or they will simply go bankrupt.

Is it worth that few hundred a year in dividend income, to lose thousands? I think not.

*Caveat emptor = Buyer beware

Okay, so now you know you want to reach 4% in dividend yield.

The trick is now to find a BLEND of companies that gives you that 4%. Some might be at 3%, others at 5%, and others still at 4% or any variation in between.

To limit your risk, you need to find which companies to invest in, and then figure out the average yield you will get.

As some holdings grow bigger (YAY!), trim them to keep their capital loss at a reasonable amount, and use that money to diversify into other holdings.

How much do you need to invest to get dividend income? • Save. Spend. Splurge. (4)

My personal rules are:

  • Dividend investing is only 50% of my portfolio – the other 50% is in funds.
  • No more than $10,000 in any one stock across all holdings; I only put in $10K into holdings that are solid, but they are few and far between (think: mostly banks).
  • Mostly, I limit my risk to $5000 in each company. If I lose $5000 it isn’t the end of the world.
  • No stocks above 6% dividend yield – this isn’t sustainable. Good dividend stocks are around 3% – 4%. 6% is really pushing it, even.
  • Spread the dividend-paying companies across various industries – I am very heavy in banking, so I am currently trying to diversify out into food or utilities that way I don’t get slammed if something happens to banks, and I have other streams to keep things afloat.

My goal for 2020 was to have $12,000 in projected income.

I hit that in February 2020: Investments Roundup, and have a projected income of $15,000.

I may revise that to something higher for 2020, but that depends on my contract getting extended.

You can piggyback off mutual funds that are focused on dividend paying stocks like the TSX Dividend Aristocrats Index, and just use their list as a starting point to see what you might want to invest in.

In there you will find stocks to look at, and decide if they are worth it or not (some of them on the list I am not a fan of because I think their debt load is too high and I am not a fan of debt individually or in companies when it is a ridiculous ratio).

An example of one of my favourite dividend paying stocks – Telus (T) is:

Let’s look at Telus (T):

How much do you need to invest to get dividend income? • Save. Spend. Splurge. (5)

You can see on the Globe & Mail Stock Page for Telus, that the payout is $2.33 a year, and currently based on market prices, the yield is 4.68% give or take (I calculated it in that minute as 4.61%)

This means that for every stock you earn, you will get $2.33 in dividends that year.

You can also see their individual dividend history payout on their page:

How much do you need to invest to get dividend income? • Save. Spend. Splurge. (6)

And this blurb:

In February 2020, The TELUS Board of Directors has declared a quarterly dividend of $0.5825 per share on the issued and outstanding Common Shares of the Company payable on April 1, 2020 to holders of record at the close of business on March 11, 2020. This first quarter dividend represents an increase of 6.9 per cent from the $0.545 quarterly dividend paid on April 1, 2019.

Key facts to glean:

  • They are paying $0.5825 per share, quarterly, or 4X a year. $0.5825 x 4 = $2.33 <– matches above
  • They used to pay $0.545 every quarter last year.
  • They INCREASED the dividend by 6.9%

Hmm. Is it sustainable?

Scroll down to the bottom of that page and you will see they have been paying dividends since 1999. It is now 2020, so over a decade, and consistently increased it:

THIS IS WHAT YOU WANT TO SEE.

As a dividend investor, my heart strings go pitter-patter….

Of course, there are other ways you can invest in dividends, and they don’t have to be in individual stocks but in mutual funds or index funds.

Extra Reading

P.S. This is why I invest in dividends and this is what you need to invest in to get dividends.

Related

How much do you need to invest to get dividend income? • Save. Spend. Splurge. (2024)

FAQs

How much do you need to invest to make $1000 month on dividends? ›

In a market that generates a 2% annual yield, you would need to invest $600,000 up front in order to reliably generate $12,000 per year (or $1,000 per month) in dividend payments. How Can You Make $1,000 Per Month In Dividends? Here are the steps you can take to build yourself a sufficient dividend portfolio.

How much money do I need to invest to make $3000 a month in dividends? ›

If you were to invest in a company offering a 4% annual dividend yield, you would need to invest about $900,000 to generate a monthly income of $3000. While this might seem like a hefty sum, remember that this investment isn't just generating income—it's also likely to appreciate over time.

How much money do you need to make $50000 a year off dividends? ›

And the higher that balance gets, the less of a dividend yield you'll need to generate some significant income. If, for example, your portfolio gets to a value of $1.5 million, you could invest in a fund or multiple investments that yield an average of 3.3%. At that rate, you could generate $50,000 in annual dividends.

How much money needed for dividend income? ›

If you are considering a dividend-focused strategy, you should carefully assess your income needs and risk tolerance. For example, if you require an income of 100,000 per year and were looking at a dividend yield of 10%, you would need to invest 1,000,000.

How much dividends to make $500 a month? ›

With a 10% yield and monthly payout schedule, you can get to $500 a month with only $60,000 invested. That is, $6,000 per year paid on a monthly basis. Unfortunately, most stocks don't have yields anywhere near 10%. Many do have high enough yields to get you to $500 a month with diligent savings, but don't pay monthly.

How much money in dividends to make $5000 a month? ›

Invest in Dividend Stocks

The payments are considered passive income since you can collect the dividends whether you trade the stock actively or not. To generate $5,000 per month in dividends, you would need a portfolio value of approximately $1 million invested in stocks with an average dividend yield of 5%.

Can I live off dividend income? ›

Over time, the cash flow generated by those dividend payments can supplement your Social Security and pension income. Perhaps, it can even provide all the money you need to maintain your preretirement lifestyle. It is possible to live off dividends if you do a little planning.

How many dividends does 1 million dollars make? ›

Stocks in the S&P 500 index currently yield about 1.5% on aggregate. That means, if you have $1 million invested in a mutual fund or exchange-traded fund that tracks the index, you could expect annual dividend income of about $15,000.

How can I make $1000 a month passively? ›

Passive Income: 7 Ways To Make an Extra $1,000 a Month
  1. Buy US Treasuries. U.S. Treasuries are still paying attractive yields on short-term investments. ...
  2. Rent Out Your Yard. ...
  3. Rent Out Your Car. ...
  4. Rental Real Estate. ...
  5. Publish an E-Book. ...
  6. Become an Affiliate. ...
  7. Sell an Online Course. ...
  8. Bottom Line.
Apr 18, 2024

How much to make $1,000 a year in dividends? ›

Want to Gain $1,000 in Annual-Dividend Income? Invest $11,765 in These Outstanding High-Yield Dividend Stocks | The Motley Fool.

How much stock would you need to live off dividends? ›

Here's a breakdown of how much you would need to invest based on different yields: For a 2% dividend yield, an investment portfolio of approximately $2,969,200 is required to generate $59,384 in annual dividend income.

How much money saved to live off dividends? ›

For example, say I need to earn $50,000 a year to live comfortably and my average dividend yield is 5%. So, I would need to own $50,000 / 0.05 = $1 million worth of shares to meet my income needs.

How much money do I need to invest to make $4000 a month? ›

Making $4,000 a month based on your investments alone is not a small feat. For example, if you have an investment or combination of investments with a 9.5% yield, you would have to invest $500,000 or more potentially. This is a high amount, but could almost guarantee you a $4,000 monthly dividend income.

Can you live off monthly dividends? ›

Living off dividends means your portfolio generates a passive income stream that can cover your expenses indefinitely. No more punching the clock to earn a paycheck or worrying about your portfolio's fluctuating value as long as the dividends keep rolling in.

How do millionaires live off interest? ›

Living off interest involves relying on what's known as passive income. This implies that your assets generate enough returns to cover your monthly income needs without the need for additional work or income sources. The ideal scenario is to use the interest and returns while preserving the core principal.

How much invested to make $1,000 a year in dividends? ›

This means you can secure $1,000 of annual-dividend income by investing about $11,765 spread evenly among them. Here's why they look like a good deal that could get much better by the time you're ready to retire.

How much dividend on 100K? ›

How Much Can You Make in Dividends with $100K?
Portfolio Dividend YieldDividend Payments With $100K
1%$1,000
2%$2,000
3%$3,000
4%$4,000
6 more rows
Mar 23, 2024

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