How Do I Make $500, $1,000, $5,000… Per Month in Dividends?
Monthly dividends are prized because they provide reliable and consistent income.
Dividends by and large are used to signal that a certain amount of corporate earnings are guaranteed.
Stocks tend to be punished heavily when dividends are cut. And given most companies tend to grow their earnings over time and dividends become a more realistic capital allocation decision, dividends also tend to grow over time in conjunction.
Getting dividend income on a monthly basis is appealing because most recurring expenses (e.g., mortgage, utilities) are due each month.
Accordingly, dividend income investors need to know what kind of portfolio size they need to meet their income goals.
Of course, this depends on how much dividend income is needed each month. Some are simply looking to make something from their portfolio, even if it’s as low as $100 per month.
Others are looking for something that could cover all of their monthly expenses, say $5,000 per month.
Or it could mean something like $2,000, $3,000, or $4,000 per month if they have lower living expenses.
How much do you need to invest to make $100 / $500 / $1,000 / $5,000 a month in dividends?
Naturally, how much you need to invest to make a certain amount of money will depend on the yield of the asset.
If you want to make $100 per month and the dividend yield is only one percent, then you’re going to need over $100,000. On the other hand, if you get 10 percent on your investments, then you need $12,000 to make $100 per month.
On the other hand, if you need $10,000 per month in dividends instead of $100, then multiply those numbers by 100.
A one percent yield would require $12 million invested to generate $10,000 per month. And you’re also going to get price movement on that $12 million invested, so it’s easy for that portfolio to swing by more than $10,000 per day ($10,000 is just 0.08 percent of $12 million).
If you get 10 percent on your assets, then you need $1.2 million to generate $10,000 per month.
The following chart provides a representation of how much you would need to invest based on monthly dividend income needs – in increments of $100, $500, $1,000, $2,500, $5,000, and $10,000 – and the yield on assets from 1 to 10 percent.
Monthly dividend income (top) vs. Yield (left)
Is it possible to get monthly dividends from quarterly dividend stocks?
Yes, it’s possible.
Most dividend stocks pay out on quarterly intervals. However, you can get monthly dividend payments by buying stocks that pay out their dividends at staggered intervals.
This is what’s known as dividend laddering.
Stocks most commonly pay dividends in January, April, July, and October, as these are the months after quarterly financial reporting periods.
In order to receive monthly dividends, you’ll also have to find stocks or other types of investments that also pay in [Feb, May, Aug, Nov] and [Mar, Jun, Sep, Dec].
Of course, getting dividends that are perfectly staggered to pay roughly equal monthly allotments is a secondary consideration.
If you’re lacking a good set of [Mar, Jun, Sep, Dec] investments, it’s important not to skimp on quality just for the sake of getting monthly dividend payments at a certain date.
There are also stocks that pay monthly dividends. They’re not entirely common, but they exist.
Many of these stocks are in real estate because of the REIT structure. REITs are required to distribute a minimum of 90 percent of their taxable income to shareholders.
There are also some of these types of stocks in other industries as well, such as oil and mineral rights and master limited partnerships (MLPs), but these tend to be even more volatile than REITs.
How important is the dividend yield?
When looking for dividend stocks, you want to find those that have a high dividend yield.
This is because you’ll generate more income from your dividend stocks if they have a high yield, holding all else equal.
However, dividend yield is not the only factor you should consider when looking for dividend stocks.
You also need to look at a company’s dividend payout ratio and dividend growth rate in order to get a well-rounded view of its potential as a dividend investment.
A high dividend yield means that the dividend is high in proportion to the stock price.
For example, if a stock has a yield of 10 percent, it means that investors are receiving $10 per every $100 invested.
Value traps
However, you also need to be weary of “value traps”.
This is a situation where a stock may have a high dividend yield, but the company may be in danger of cutting or eliminating its dividend payment.
You don’t want to invest in a stock that may not be able to pay you back in the future.
Sometimes dividend yields are very high because a company has recently had poor results, causing the stock price to fall and the dividend yield to automatically rise.
Example
For example, say a stock offers an annual dividend of $6 ($1.50 per quarter), earns $8 per share, and is priced at $100.
Its dividend yield is 6 percent. Its earnings yield is 8 percent. This gives a dividend payout ratio of $6 / $8 or 75 percent.
But let’s say its financial performance has sagged recently.
Let’s say its earnings are projected to go down to $4.50 per share.
Now, this 25 percent cushion from the payout ratio is eroded and is now in deficit.
The company has a $6 per share dividend to pay out each year but only $4.50 in earnings to cover it.
It’s possible it could still be covered if the company taps into its cash balance, issues debt, engages in asset sales to raise the cash, raises new equity, or sees a turnaround in its performance.
But it’s also at risk of being cut.
And a drop in earnings relative to expectations will also cause a stock to get hit a lot price-wise.
If it were to hold the same price-earnings (P/E) ratio ($100 / $8 = 12.5x) before and after – i.e., the fall from $8 in EPS to $4.50 in EPS – the new stock price would be $56.25.
The dividend yield would now be 10.7 percent.
An investor who doesn’t carefully check ongoing financial performance might mistake this 10.7 percent dividend yield as a great undervalued investment.
However, this dividend could easily be cut without the earnings available to cover it.
If the company wanted to maintain the same dividend payout ratio as before (75 percent) it would need to cut the dividend from $6 to $3.37.
This, in turn, would keep the same dividend yield as before.
So while high dividend yields might look attractive it’s important to research them closely to understand what’s going on.
Generally speaking, if you see a high single-digit or double-digit dividend yield, it may turn out not to be such a good deal after all. But each company and each stock is different.
What are dividend aristocrats?
Dividend aristocrats are a select group of companies that have increased their dividend payout for 25 consecutive years or more.
There are generally about only 50 dividend aristocrats in the S&P 500.
What’s important about dividend aristocrats?
Dividend aristocrats are important because the dividend income they offer provide stability and consistency.
They’re not as likely to cut their dividend payout as other companies, which makes them attractive investments for income-focused investors.
In order to be a dividend aristocrat, a company must have increased its dividend payout every year for at least 25 consecutive years.
What are dividend kings?
Dividend kings are companies that have increased their dividend for at least 50 consecutive years.
These companies have proven they can withstand recessions and other challenges while still maintaining or increasing their dividend payments.
What are dividend champions?
Dividend champions are companies that have increased their dividend for at least 25 years, but don’t meet the market capitalization requirements to be a dividend king.
Dividend investing mistakes to avoid
There are a host of dividend investing mistakes to avoid.
Let’s go through some of them.
Placing too much emphasis on high dividend yields
Many dividend investors make the mistake of focusing too heavily on the dividend yield.
What’s most important is the underlying economic earnings of the business.
Any dividend that doesn’t have sufficient cushion is at risk of being cut.
This gets into the next bullet point…
Not considering the dividend payout ratio
If a company is paying out $3.00 per share in annual dividends and earns $5 per share each year, this 60 percent payout ratio is healthy.
However, if the business is earning not much above that $3.00 per share or worse, then that dividend may not be sustainable and is at risk of being cut.
This can also materially hurt the stock price in the future, if it hasn’t already.
Stocks, on a fundamental level, are priced based on the amount of earnings they generate discounted back to the present.
Therefore, a dividend that is not sustainable will see its stock price drop over time as this fact is realized by the market.
Focusing on short-term performance
Another common mistake dividend investors make is focusing too much on short-term performance.
What’s important is the long-term stability and growth of the dividend payout, not necessarily what the stock price is doing on a day-to-day or week-to-week basis.
Ignoring management’s ability to pay and grow the dividend
One dividend investing mistake to avoid is ignoring management’s ability to pay and grow the dividend.
A good dividend paying company will have management that is focused on returning capital to shareholders in the form of dividends.
In addition, these same managers should be focused on growing the dividend over time.
If either of these things is not the case, it’s generally a bad sign for dividend investors.
Disregarding low dividend yield stocks or even stocks that don’t pay dividends
Stocks that don’t provide hefty dividend yields, or no dividends at all, shouldn’t be automatically disqualified.
These stocks tend to be faster growing.
If anything, adding “growth” stocks can provide reasonable diversification in the equities portion of your portfolio.
Dividend stocks tend to have more of a “value” flavor to them.
Growth stocks tend to outperform value stocks when lots of liquidity is going into the markets (while value underperforms).
On the other hand, value may outperform growth later in the cycle when liquidity is being pulled back and traders and investors begin to prize cash-producing assets (i.e., assets that produce earnings in the present rather than growth stocks discounted to produce earnings far off in the future).
It’s important to make sure you’re diversified in various ways, not just within dividend stocks but across all asset types.
Paying too much for a dividend
If you’re buying stocks with a preference to strong preference for dividends, you will likely have more of a value mindset.
If a stock is paying out a 3 percent dividend yield and the dividend payout ratio is near 100 percent (i.e., nearly all of the earnings are paid out as a dividend), that’s starting to look like a fairly expensive stock.
A stock like that would have a P/E ratio of 30x or above. And if they’re paying out so much of the earnings as a dividend this isn’t leaving much to invest back into the business to facilitate additional growth.
This also includes the consideration of selling stocks that have gone up in value a lot if it makes sense to get rid of them.
If, for example, you bought a stock at a reasonable 10x earnings and it’s gone up to 25x earnings, you might consider shedding some or all of it if there are other investments that you believe could be a better value.
Not reinvesting the dividends
It’s great to have dividends to cover your lifestyle expenses. But it’s also nice, if not more fulfilling, to see the portfolio grow over time.
An easy way to do this is through the reinvestment of those dividends.
When a company pays out a dividend, it’s essentially giving shareholders a portion of the company’s earnings.
Reinvesting these dividends allows an investor to buy more shares of the company with the money and compound their returns over time.
This will cause your ownership stake in the company to increase over time, which is what you want as an investor.
For example, if your portfolio has a 4 percent dividend yield and you average another 3 percent in capital gains each year (because of the additional earnings from the stocks providing some level of price appreciation long-term), living off a fraction of that 7 percent total and reinvesting the dividends will help improve the long-term income generation potential of the portfolio.
Steps to making $100 to $5,000 per month in dividends each month
1) Open a brokerage account for your dividend portfolio (if you don’t already have one)
On DayTrading.com, we have lots of reviews on various brokers.
Most brokers have plenty of stocks to choose from, though some can be better than others.
2) Monitor your dividend portfolio regularly and rebalance as needed
This is important in order to keep your portfolio diversified and balanced.
3) Reinvest your dividends
One of the great things about dividend stocks is that you can reinvest the dividend payments back into buying more shares of stock, which will help you grow your portfolio even faster.
The less of your dividend income (or regular income) you spend, the more you have to invest.
And the more you invest, the more of a chance you give your portfolio to grow.
4) Stay disciplined and patient
Investing in dividend stocks can be a great way to build long-term wealth, but it’s important to stay disciplined and patient.
Stick to your investing plan and don’t let emotions get in the way of making rational decisions.
Stocks will always gyrate in price. But as long as the company’s financial health is okay and your dividends are coming in, it’s not a big concern, especially if you don’t use leverage (or at least not much of it).
5) Budgeting – Determine how much you can save and invest each month
This will help you know how long it will take to reach your investing goals.
Saving occurs first before you can invest.
In order to successfully do this, it’s highly recommended to have a monthly budget. How much is coming in, how much is going out and to whom.
This helps you get ahead of all your expenses.
Every person is basically their own business entity. And no company doesn’t write down its budget ahead of time.
If you are spending what you’re making (or spending more than that) you won’t be able to invest and get the ball rolling.
That’s why it’s so critical to save money.
But once you have some money saved up, it’s important to start investing that money so it can start working for you.
There are a lot of dividend stocks out there, so it’s important to do your research and find the ones that are right for you.
DayTrading.com has lots of great resources on dividends and dividend stocks, so be sure to check out other articles.
6) Deposit to your dividend portfolio account
Direct deposit is an easy way to pay yourself each month.
But if your income and/or expenses vary month to month, then doing it manually is fine.
The key is to make sure you are consistent with your dividend payments.
7) Consider using dollar-cost averaging
Dollar-cost averaging is when you invest a fixed sum of cash into a security or securities at fixed intervals.
You’re buying more shares when the price is low and fewer shares when the price is high.
This technique can help to average out the cost of your investment over time, which can be helpful in mitigating losses during market downturns.
It also avoids market timing. It’s simply about saving the money and getting it into the market.
Remember, even if the market falls 20 percent, that’s 80 percent more than what you had if you didn’t save it at all.
8) Review your dividend portfolio regularly
It’s important to stay on top of your dividend portfolio so you can make sure it’s performing in line with how you want it to.
That means monitoring your stocks, dividends, and account balance on a regular basis.
9) Choose stocks that fit your dividend strategy
People do best when they put their money into things they understand.
If you’re not a technology person, then maybe buying a lot of technology stocks isn’t the best fit for your portfolio.
You should also have a good reason for owning each dividend stock.
Just because a stock pays a dividend doesn’t mean it’s a good investment.
You still need to do your homework and make sure the company is in good financial shape, has a strong competitive advantage, and is run by competent management.
10) Have realistic expectations
Investing in dividend stocks can be a great way to build long-term wealth, but it’s important to have realistic expectations.
The stock market will go up and down over time, so there will be periods of gains and losses.
What’s important is to stay the course and stick to your investing plan. Over time, the market has trended upward, so if you can keep your emotions in check, you’ll be well-positioned to succeed.
Things to keep in mind on your dividend income journey
Here are some things to always have in mind when investing in dividend stocks.
Start small and create an incremental plan to reach your goal
Starting out as a total beginner in anything is intimidating.
Some report being nervous about even hitting the button to submit an order at first.
But when you have a plan ahead of time it makes everything a lot easier.
If you saved $1,000 last month, you’ll want to know exactly what you’re buying ahead of time. The stock(s) you’re going to buy and how many shares.
Spread the risk by investing in different stocks
You don’t want to risk putting your entire net worth into a single thing or even a smattering of stocks.
You’ll want to diversify so you have broad exposure.
This way if one company goes bankrupt, it’s not the end of the world.
You can always add more money to your account and buy more shares later.
Systematically invest every month or quarter
If you want to make things easier on yourself, you can set up a systematic investment plan (SIP).
With an SIP, you can have a fixed sum of cash automatically withdrawn from your bank account and invested into a security or securities at fixed intervals.
This is a great way to dollar-cost average into a position and take the emotion out of investing.
Get your dividend payments back into the market
As mentioned above, dividend reinvestment is when you use the dividend payments you receive to purchase additional shares of the same company.
This is often called a Dividend Re-Investment Plan (DRIP).
Most brokers will offer dividend reinvestment.
With dividend reinvestment, you can start with a small number of shares and gradually increase your position over time.
This can be a great way to compound your dividend income.
Monitor your dividend stocks and account balance regularly
It’s also important to monitor the financial health of the companies you own.
This way you can buy more, trim positions, or sell, if necessary.
Double-check the next ex-dividend date of your target stock
You also need to be aware of the dividend dates.
The ex-dividend date is the day on which you must own a stock in order to receive the next dividend payment.
If you buy a stock on its ex-dividend date or later, you will not receive the next dividend.
The dividend will instead go to the person who sold you the stock.
Research stocks with consistent dividend histories
A dividend aristocrat is a company that has increased its dividend for at least 25 consecutive years.
Dividend kings are companies that have increased their dividends for at least 50 consecutive years.
There are also dividend champions, which have increased their dividend for at least 25 years, but don’t meet the market capitalization requirements to be a dividend king.
Investors often look to dividend aristocrats, kings, and champions as a way to find stocks with a history of growing dividend payments.
These companies have proven they can withstand recessions and other challenges while still maintaining or increasing their dividend payments.
Consider your overall financial picture
When you’re planning your investments, it’s important to consider your whole financial picture.
This includes your other investments, your debt, and your cash flow.
You’ll want to make sure you’re diversified and not putting all your eggs in one basket.
You’ll also want to consider how much risk you’re willing to take.
Dividend stocks can be a great way to build long-term wealth. But it’s important to do your research and have a plan before you start investing.
Avoid basing decisions on just dividend yield rates
The higher the yield, then theoretically the lower the amount of money you’d need to achieve your goal.
However, stocks with high dividend yields tend to be risky or are at risk of a cut in their dividend.
On top of that, the dividend yield you might see printed on Google stock quotes or a different database might not be accurate.
Always double-check.
The key element is the economic earnings of the underlying business, not the dividend rate.
Check what income taxes you may owe on the dividend income
Depending on the country you reside in and/or the dividend stocks you hold, you may have to pay taxes on the dividend income you receive.
It’s important to be aware of these taxes so that you don’t get an unfortunate surprise come tax time.
Buy stocks in multiple companies and industries to reduce the risk
By investing in multiple companies and industries, you can help reduce the risk of losing money if one company or industry hits a rough patch.
Diversification is key when it comes to investing to avoid the big downs that can blow big holes in your portfolio.
As we’ve mentioned in other articles, this doesn’t include just investing in stocks, but also diversification among asset classes, countries, and currencies.
- The Math Behind Portfolio Diversification
- How to Balance Risk to Achieve More Return Per Each Unit of Risk
- Building a Balanced Portfolio with Options
- Building a Balanced Portfolio with VRP Overlay
“How much do I need to invest to make $100 / $500 / $1,000… a month in dividends?” – Summary
Dividend stocks can be a great addition to any portfolio. They offer the potential for both growth and income, which can help diversify your holdings and provide stability in volatile markets.
The two basic determinants of how much dividend income you’ll generate are:
- the dividend yield of the asset, and
- how much dividend income you need per month
If you need $3,000 in dividend income per month, you’ll need $36,000 per year. If your portfolio’s yield is 5 percent, that means you’ll need $720,000 in your dividend portfolio.
There are also other important factors to consider such as the dividend payout ratio.
A company that pays a 3 percent dividend yield and has a 50 percent dividend payout ratio is more sustainable than a company that pays a 6 percent dividend yield but has a 100 percent dividend payout ratio.
Both have equal earnings yields of 6 percent, but the 3 percent dividend is safer than the 6 percent.
Moreover, the 3 percent stock has more capital gains upside with a lower payout ratio relative to the 6 percent stock paying out everything.
Earnings change over time, so it’s possible the 6 percent dividend yield stock will build more of a buffer and the 3 percent dividend yield stock could have less of one.
So, it’s also important to look at the underlying earnings of the business to make sure there’s sufficient cushion should the dividend get cut.
Disregarding low dividend yield stocks or even non-dividend stocks can also lead to suboptimal results. Diversification is important.
Paying too much for a dividend can be harmful in the long run and you could even consider trimming positions or selling stocks entirely if their prices have gone up a lot.
It’s also a great idea to reinvest any dividends that you don’t need as income to improve the long-term dividend income potential of the portfolio.
When you’re planning your investments, consider your overall financial picture and make sure you’re diversified.
And always remember to double-check the dividend yield rate and the taxes you may owe on your dividend income.
Dividend Investing FAQ
What is the ex-dividend date?
The ex-dividend date is the day on which you must own a stock in order to receive the next dividend payment.
If you buy a stock on its ex-dividend date or later, you will not receive the next dividend.
The dividend will instead go to the person who sold you the stock.
How can I find stocks with consistent dividend histories?
One way to find stocks with consistent dividend histories is to look for dividend aristocrats, kings, and champions.
Dividend aristocrats are companies that have increased their dividend for at least 25 consecutive years.
Dividend kings are companies that have increased their dividend for at least 50 consecutive years.
There are also dividend champions, which have increased their dividend for at least 25 years, but don’t meet the market capitalization requirements to be a dividend king.
What should I consider when planning my dividend investing strategy?
When you’re planning your dividend investing strategy, it’s important to consider your overall financial picture.
This includes your other investments, your debt, and your cash flow.
You’ll also ideally want to diversify among asset classes, countries, and currencies.
How much income tax will I owe on my dividend income?
Depending on the country you reside and/or the dividend stocks you hold, you may have to pay taxes on the dividend income you receive.
It’s important to be aware of these taxes so that you don’t get an unfortunate surprise come tax time.
What is the dividend yield?
The dividend yield is the percentage of a company’s stock price that is paid out in dividends.
For example, if a company has a dividend yield of 3 percent, that means 3 percent of its stock price is paid out in dividends.
That means a $100 stock will pay out $3 per share in dividends per year, or $0.75 per share in dividends per quarter.
Is it better to reinvest my dividends or take the cash?
There is no right or wrong answer to this question. It depends on your personal financial situation and goals.
If you reinvest your dividends, you’re essentially buying more shares of the company.
This can help you build your position faster.
However, you may not need or want more shares of the company to prevent over-concentration in a single investment.
Or you may want the dividend income to fund your expenses or to fund a purchase.
In that case, you might prefer to take the cash so that you can use it for other investments or expenses.
What are some risks of dividend investing?
There are a few risks to dividend investing that you should be aware of.
First, companies can cut their dividend at any time. This is usually done in times of financial hardship.
Second, the dividend yield you might see printed on Google stock quotes or a different database might not be accurate.
Always double-check and triple-check among different sources, including the own company’s website, which should have a dedicated place for investor information.
Third, depending on the country you reside and/or the dividend stocks you hold, you may have to pay taxes on the dividend income you receive.
It’s important to be aware of these taxes so that you don’t get an unpleasant surprise come tax time.
What are some benefits of dividend investing?
There are several benefits to dividend investing.
One is that it can provide you with a source of income that is not dependent on your job.
Another is that dividend stocks tend to be less volatile than non-dividend stocks, meaning they don’t fluctuate as much in price.
This can provide some stability for your portfolio.
Finally, dividend investing can help you build wealth over time as the dividend payments compound.
What are some dividend traps?
A dividend trap is a stock that appears to be a good dividend stock, but actually isn’t.
For example, a company might have a high dividend yield because its share price has fallen sharply.
Or, a company might have a high dividend yield because it is about to cut its dividend.
Always do your research before buying any stock, dividend or otherwise.
When is the dividend payment date?
The dividend payment date is the date on which the dividend is paid to shareholders.
This date can vary from stock to stock, but is usually around the same time each year.
What is the dividend reinvestment plan (DRIP)?
The dividend reinvestment plan (DRIP) is a program offered by some companies that allows shareholders to automatically reinvest their dividends into more shares of the company.
This can be a convenient way to build your position in a company without having to pay any commissions.
What are some other resources I can use to learn about dividend investing?
There are a number of excellent resources you can use to learn about dividend investing.
We have a dedicated dividend page on DayTrading.com as well as a list of dividend stocks that pay monthly.
We also have a page on dividend capture strategies.
Additional, we have guides on how to invest in consumer staples and utility stocks, which are popular for paying out dividends to their investors.
No matter what your goals are, dividend investing can be a great way to build wealth over time. Just be sure to do your research and stay aware of the risks involved. With a little knowledge and effort, you can be a successful dividend investor.