This plan could help solve America's retirement crisis.
Dividends can be the foundation of a long-term investment strategy. They provide shareholders with passive income distributed from companies' excess profits. However, there is a misconception about dividend stocks.
Some people think that because you need a lot of shares to have enough dividend income to live on, only deep-pocketed individuals should be dividend investors. That's not true.
I'll show you how $100,000 in annual dividend income can be yours with $200 invested monthly and enough time.
The math checks out
First, I'll admit that $200 per month is still a lot of money for some people, but many Americans can afford to set that aside to shore up their financial futures. The average car payment in the United States is over $700 for new and $500 for used vehicles. A few dinners and nights out on the town can easily add up to $200. If possible, you should do your best to save this $200 from your monthly income.
Then, take that $200 each month and invest it in dividend stocks and funds.
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With an average dividend yield of 3%, roughly 8% annual returns on your portfolio (slightly trailing the broad market), dividend payout increases of 5% each year, and your dividends reinvested, your portfolio will be worth more than $1 million after 30 years. That's enough to give you $100,000 in steady dividend income. Not only do dividends provide income without selling shares, but you'll keep getting those payout raises as long as the businesses you invest in perform well.
Here is a great ETF to consider
If you see the potential of this saving and investing strategy but don't know where to start with your portfolio, the easiest option is an exchange-traded fund (ETF). These funds hold groups of stocks while trading under a single ticker symbol. The Schwab U.S. Dividend Equity ETF (SCHD 1.11%), for example, is designed to track the total return performance of the Dow Jones U.S. 100 Dividend Index, a basket of 100 U.S. companies whose stocks pay dividends.
The fund has generated an annualized total return of 11.2% over the past decade, and it currently offers a 3.6% yield (even more than the baseline used in the above scenario). Its top holdings include a list of blue-chip stocks, including Amgen, AbbVie, Chevron, and PepsiCo. Those four stocks make up about 17% of the total fund.
Investors can easily diversify their portfolios with just a handful of ETFs like this one. There are funds for conservative investors and those looking for dividend growth. Funds can also focus on specific industries, allowing you to build your portfolio according to your risk tolerance and goals.
How to implement it for yourself
Getting started is intimidating, but you can automate much of the process once you get it going. Start with an investment account. There are regular taxable accounts and retirement accounts, such as a Roth IRA, that have rules but offer tax benefits.
Once you decide on an account, automate a scheduled deposit from your bank right to your investment account. Invest those deposits as they come (this can also be automated), and don't worry about whether the market is up or down or what you read on the news. Predicting where the stock market will go in the near term is impossible, so don't lose sleep over day-to-day volatility.
Time is your most powerful advantage as an individual investor, and thinking in years (preferably decades) is what allows you to benefit from the stock market's long-term upward trend. With your dividends reinvested year after year, you'll be building a potentially life-changing income stream.
Justin Pope has no position in any of the stocks mentioned. The Motley Fool recommends Amgen and Chevron. The Motley Fool has a disclosure policy.
FAQs
This broader mix of stocks offers higher payouts and greater diversification than what you'll get with the Invesco QQQ Trust. And if you've got a large portfolio totaling more than $1.1 million, your dividend income could come in around $50,000 per year.
What are the three dividend stocks to buy and hold forever? ›
The key is to find a company that blends a high yield with a sound business model that can support earnings growth, and in turn, a higher dividend. Here's why Brookfield Renewable (NYSE: BEPC) (NYSE: BEP), Vitesse Energy (NYSE: VTS), and Chevron (NYSE: CVX) stand out as three high-yield stocks to buy now.
How much money do you need to make 100 dollars in dividends? ›
At recent prices, these three stocks offer a 6.4% yield on average. This means an up-front investment of $1,580 spread evenly among them is more than enough to produce $100 in dividend income over the next 12 months.
What stocks pay the highest monthly dividends? ›
- Realty Income Corporation (NYSE:O) Dividend Yield as of February 12: 5.61% ...
- Main Street Capital Corporation (NYSE:MAIN) Dividend Yield as of February 12: 5.83% ...
- Apple Hospitality REIT, Inc. ...
- LTC Properties, Inc. ...
- Gladstone Commercial Corporation (NASDAQ:GOOD) ...
- EPR Properties (NYSE:EPR) ...
- PennantPark Floating Rate Capital Ltd.
However, this isn't always the case. If you're looking to generate $300 in super safe monthly dividend income (note the emphasis on "monthly" income), simply invest $43,000, split equally, into the following two ultra-high-yield stocks, which sport an average yield of 8.39%!
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.
What is the safest dividend stock to buy now? ›
Top 25 High Dividend Stocks
| Ticker | Name | Dividend Safety |
|---|
| ENB | Enbridge | Safe |
| HIW | Highwoods Properties | Borderline Safe |
| EPD | Enterprise Products Partners | Safe |
| VZ | Verizon | Safe |
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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.
Who is the best dividend investor of all time? ›
Warren Buffett is widely considered the greatest investor of all time, and much of his investment strategy relies on collecting dividend payments.
How much money do you need to make 100K a year in dividends? ›
The S&P 500 offers a current dividend yield of 1.6% and has delivered an average of 2.34%. That means if you want to generate $100,000 in annual passive income from a vanilla index fund, you would need $4,273,504 in assets ($100,000 divided by 2.34%).
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%. For example, Johnson & Johnson stock currently yields 2.7% annually. $1 million invested would generate about $27,000 per year or $2,250 per month.
How much to invest to get 200 a month in dividends? ›
The first high-octane income stock capable of generating $200 in monthly income from a beginning investment of $27,000 that's split in thirds is retail real estate investment trust (REIT) Realty Income (O -0.02%).
Does Coca-Cola pay monthly dividends? ›
The Company normally pays dividends four times a year, usually April 1, July 1, October 1 and December 15. Shareowners of record can elect to receive their dividend payments electronically or by check in the currency of their choice.
What are the top 5 dividend stocks to buy? ›
Top 10 Dividend Stocks In The United States
| Name | Dividend Yield | Dividend Rating |
|---|
| CompX International (NYSEAM:CIX) | 5.17% | ★★★★★★ |
| Ennis (NYSE:EBF) | 4.86% | ★★★★★★ |
| Credicorp (NYSE:BAP) | 5.42% | ★★★★★☆ |
| West Bancorporation (NasdaqGS:WTBA) | 5.63% | ★★★★★☆ |
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Stocks with good 1 month returns
| S.No. | Name | CMP Rs. |
|---|
| 1. | CG Power & Indu. | 629.85 |
| 2. | Hindustan Zinc | 583.25 |
| 3. | Marico | 591.40 |
| 4. | Apar Inds. | 8047.30 |
23 more rowsHow Much Can You Make in Dividends with $100K?
| Portfolio Dividend Yield | Dividend Payments With $100K |
|---|
| 1% | $1,000 |
| 2% | $2,000 |
| 3% | $3,000 |
| 4% | $4,000 |
6 more rowsStocks 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 do you get 50k dividend? ›
Assuming the average annual dividend yield to be 7%*, you would need to invest INR 85,00,000 to get approximately INR 50,000 per month. *The average dividend rate is calculated from the top 15 dividend-yielding stocks.
