How to Make $1000 per Month in Dividends: Passive income is touted as the holy grail of wealth creation. Many of them, though, aren’t genuinely passive income sources if you examine closely. As long as the effort is put in, they’ll provide you with a continuous stream of revenue while you’re busy doing other things.
Blogging is a great illustration of this. A lot of money can be made from it once it’s up and running and generating a constant stream of revenue for you. However, it takes a lot of time and effort to get a blog to that stage.
No matter how good your website gets, you’ll still have to keep it running smoothly by continually adding new and interesting material for your visitors to enjoy. It’s at best a semi-passive source of revenue. Though a wonderful source of income, it isn’t completely passive.
That’s why I’m a big fan of dividends. A true source of passive income, it’s that easy to set it up and forget it.
Dividend Income: The Ultimate Passive Income Source for You
Passive income is money that isn’t worked for by the person who gets it. Let’s start with that definition.
A few investments meet that standard, if you use that criterion as your guide. There are several examples of interest-bearing investments, such as certificates of deposit and US Treasury securities.
You’ll be able to count on a continuous stream of income from your investment because you know the rate of return (the Interest). The only issue is that the interest rates on the vast majority of these instruments are currently much below 1 percent.
As with blogging, rental real estate is a kind of semi-passive income. In order to get the monthly income, you’ll have to maintain the property.
In this period of low interest rates, dividend income is in a league of its own. Without any work on your side, you can build a portfolio of equities that consistently returns 3% to 4% every year.
That’s the best example of a passive investment currently available.
Sure, it takes a lot of your money to make the amount of money (Return) you want to make but it is a start.
Even $1,000 per month in dividends is possible once you get the hang of it. There will be no effort required on your part after everything is set up. Below I want to talk about some a benefit of dividend income.
Investing in High-Dividend Paying Stocks and Capital Appreciation
Although the focus of this article is dividend income, dividend stocks have the ability to grow in value as well. Stocks, after all, have a tendency to increase in value over time.
As an illustration, consider Pepsi (PEP). A dividend of roughly 3% is now being paid out by the stock. Currently, the stock is trading at around $172. However, you could have gotten a better deal on the stock ten years ago when it was only worth about $60.
That means the stock’s value has almost tripled in 10 years, while you’ve earned a passive income of around 3% every year.
This illustrates the dual benefit of dividend stocks, which not only give regular income but also increase in value over time. That protects your money from inflation, but also allows it to increase over time.
There are few better options out there than dividend stocks, and they should be the backbone of your overall portfolio. Dividend stocks should be a cornerstone of your portfolio, even if you have other investments.
Dividend Paying Stocks vs. Growth Orientated Stocks
Now, I must make a critical point here regarding appreciation. For the most part, growth companies tend to rise in value more rapidly than dividend stocks. The reason for this is that growth stocks, as the name implies, are all about growing.
They either pay very low or even no dividends. Instead, all profits are returned back into the company in order to increase revenue and profitability.
Growth stocks that don’t pay dividends have been some of the greatest performers over the past decade. Amazon is a good illustration of this (AMZN). Despite the fact that it doesn’t pay a dividend, the stock’s value has climbed from $170 per share a decade ago to well over $2800 today.
Remember that even if you decide to keep a large number of these stocks in your portfolio, you won’t receive any money from them until you decide to sell. Your appreciation of value will come into play at that point. Therefore, f or the time being, it’s only a paper gain.
Dividend stocks, on the other hand, are a better alternative if you’re searching for a steady stream of income.
Where to Find the Best Dividend Paying Stocks?
Dividend-paying stocks tend to be issued by large, well-established corporations with a proven track record of distributing dividends.
Also, in most situations, they’re already well-known. This is due to the fact that they are either well-known for their products or services, or they have been in business for a long period as industry leaders. Investors like them for all of these reasons, as well as the dividends they provide.
Individual Stocks – Starting Your Dividend Income Search with Dividend Aristocrats
The S&P 500 index’s current average dividend yield is around 1.90%. Investing in equities with greater dividend yields can be a good place to start.
While stock screener software can help you locate these businesses, there is an even faster method.
Dividend Aristocrats is a list of high-dividend-paying stocks where you may locate the greatest and most dependable dividend paying choices. As of right now, there are 65 organisations on this list. The list of companies can change at any time though.
For a firm to be considered a Dividend Aristocrat, it must meet a set of strict requirements. The business has to:
- Increase the dividend it pays to shareholders for at least 25 straight years.
- Be a large, established company, rather than a fast growth company, and generally part of the S&P 500.
- Have a minimum market capitalization of at least $3 billion.
- Have an average of at least $5 million in daily share trading value for the three months prior to the rebalancing date.
In other words, it doesn’t mean that a dividend-paying stock that appears on this list is necessarily a good one to invest in. Even if a corporation appears on this list, it does not necessarily imply that this is the best company to invest in going forwards.
Almost every year, a new company joins the list and another leaves. It is important to do your research even on the companies on this list.
What to Watch Out For Even with Dividend Aristocrats Dividend Paying Stocks
Even with Dividend Aristocrats, there are two things to keep in mind:
- The percentage of dividends paid out to total shareholders’ equity. Dividend payout ratio measures how much of a company’s nett earnings are distributed to shareholders as dividends. The existing dividend is unlikely to last if this figure rises to or above 100%. The best dividend payout ratio is between 50% and 60%.
- An unreasonably high dividend return. Dividend Aristocrats typically have a dividend yield of between 3% and 4% on average. If a Dividend Aristocrat pays more than the average, such as 6% or even 8% or more, this could be due to a decline in the company’s share price. It also may be a sign the company is in some sort of distress.
Dividend reductions are possible in any of the above scenario. As a result, your dividend yield may well be cut and the stock price will almost surely decline.
High Dividend Paying Exchange Traded Funds (ETFs)
When asking yourself the question, How to Make $1000 per Month in Dividends? ETF investment could be an avenue you may want to look into. If you are not the one that loves a ton of research, an alternative to owning individual equities (stocks) is to buy into an Exchange Traded Fund (ETF). There are a large number of dividend-focused ETFs available for you to choose from. These are Examples of 2 to choose from:
- Vanguard High-Dividend Yield ETF (VYM) – current dividend yield of 2.86%
- SPDR S&P Dividend ETF (SDY) – current dividend yield of 2.74%
Aside from offering current yields far higher than those of interest-bearing assets, have you noticed that all these funds have shown overall profits of double digits over the last ten years?
High-flying growth stocks might make you wealthy, however these ETF’s will generally give you consistent returns. This is the sort of investment you should have in your portfolio if you are a long-term investor.
Investing in Real Estate Investment Trusts (REITs) for Dividend Payments
How to Make $1000 per Month in Dividends: When it comes to investing in real estate, a REIT (Real Estate Investment Trust) is similar to a mutual fund that invests in property, but the key difference is not just any piece of real estate. REITs invests mostly in commercial assets, such as office buildings, retail spaces, warehousing, and big apartment buildings.
In addition, a REIT must pay out at least 90% of their profits in shareholder dividends. Annual rental revenue and capital growth payouts from sold properties can make up some of the dividends payed out to shareholders.
To keep things simple and what most dividend income investor really like is the fact most REIT dividends are often paid monthly.
Please bare in mind that REITs have had a poor long-term pricing performance record and dividend payments can vary considerably year-to-year.
Sample of a Portfolio Generating $1,000 per Month in Dividends
Investing in equities that yield at least $12,000 per year in dividends is required to create $1,000 in dividends every month. To produce that $12,000 in nett income, you’ll need a $400,000 portfolio with a 3% dividend yield on average per year. ($400,000 X 3% = $12,000).
Timing Dividend Payment: Building a Portfolio to Provide You a Monthly Income
In order to get dividends each month, you’ll need to diversify your holdings over a range of companies that pay their dividends over the course of each quarter.
Quarterly dividend payments are the problem. There is a single exception: REITs, which pay out dividends on a monthly basis. However, because of their poor long-term price performance, you surely don’t want a portfolio full of REITs. The risk in having an investment portfolio that is over exposed to REITS is it can affect the overall performance of your portfolio therefore effecting your dividend income.
You should try to make the dividend payout dates for stocks you own be staggered so that you can receive dividend payouts every month.
How to Build a Portfolio that will make $1,000 per Month in Dividend Income
This is a significant roadblock for beginning investors. As discussed above, you’ll need around $400,000 in investments yielding an average of 3% to earn $1,000 each month in dividends. So the question is, how can you get to $400,000?
Let’s get a little perspective first. Investing in dividends is, at its essence, an exercise in long-term planning and investing. Your goal isn’t to make a fortune, but to make a reasonable amount of money over time.
To put it simply, Investing for the long run involves both perseverance and regularity on your part.
Begin by deciding how much money you’re going to put away each month, and then stick to it. A $500 monthly investment, for example, or even the purchase of ten shares of a particular stock each month, are both options you have.
In the long run, you can progressively raise the amount of money you put into your investments, reaching the point where you’ll be putting in thousands of dollars each year.
That’s actually a positive outcome having an investment strategy where you set aside $500 per month. You’ll be dollar-cost averaging because you’ll be purchasing a small amount of shares each month. That would be the optimal strategy to invest, as it completely disregards stock price and any timing the market fears. Every month, you’ll put in the same amount of money therefore eliminating the “have I bought to high” or “Is it the right time to buy” thoughts and fears.
Compound Growth Investing: How does it affect my Investment?
How to Make $1000 per Month in Dividends: Investing $500 each month ($6,000 annually) in a rising portfolio of dividend stocks with an average return of 10%, which includes dividends and capital gain, is an excellent illustration of compound growth investing.
You’ll have more than $400,000 in your dividend portfolio in 21 years even if you never increase the amount you invest. By stepping up your monthly contributions, you can shorten the time it takes to retire.
It all comes down to your level of commitment and the amount of spare cash you have to invest each month if you want to establish a truly passive income portfolio. Dividend reinvestment is a critical component of this long-term growth plan.
This means you won’t be taking any dividends while you’re establishing your dividend portfolio. If you receive dividends from the company in which you have invested, you’ll utilise the money to buy more shares often called a (DRP) or (DRIP)
Dividend reinvestment plans, or DRIPs, make it simple to accomplish this. Brokers are a good resource for setting this up for you. Dividends received through a DRIP are automatically reinvested in the same company.
The power of compounding lies in the combination of regular contributions, dividend reinvestment, and capital appreciation, allowing you to develop and eventually owning a portfolio large enough to earn $1,000 in dividends each month.
Conclusion
So when it comes to the question How to Make $1000 per Month in Dividends, I guess everyone is thinking “Growth companies are more attractive, dividend stocks are less so.” This may be true, however, they’re the kind of investment that can help you develop long-term wealth while also providing passive income.
For retirement portfolios, dividend-paying companies are particularly enticing. When you reach retirement age, you will have a consistent source of income in addition to the wealth you’ve built up over the years.
While the stock prices climb, you can use the 3%-4% in dividend income to cover your living expenditures.
As far as dividend income goes, you can pick whatever amount you like: $1,000, $2,000, $3,000, or even $5,000 per month. It is entirely up to you.
The high monthly income you want will initially be a lot more work, but it’s not impossible. It’s not a bad idea to earn a good living while you’re working towards financial independence and a seven-figure portfolio.
Like with anything that has got to do with your financial wellbeing and your money, always seek professional advice from a licensed financial planner to help answer all your questions.
