How I Made $1K a Month in Dividend Stocks
Written by
Caitlyn Moorhead
Edited by
Amber Barkley
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The goal of any investment you make in the stock market typically centers around maximizing your total returns and dividend payout ratio. When it comes to dividend payouts or a high dividend-paying stock, understanding the nuances of what to buy and how dividends are paid can be the difference between a little extra passive income and heavy cash flow for either short-term or long-term investments.
What Are Dividends?
Dividends are payments, typically based on profits, that an established company makes to its shareholders. Though companies are not required to pay any type of dividend, many make it a habit to do so, especially in financially fruitful consecutive years.
Companies have no timetable to make payments or even raise them, but they typically pay regularly — often monthly, quarterly or twice each year. A class of stocks referred to as “dividend aristocrats” have a track record of increasing their annual dividends every year for at least 25 years.
How To Make $1,000 in Dividend Stocks per Month
To make $1,000 per month in dividend stocks, you could model the path of financial blogger, Sam Tran, author of My Dividend Snowball, who speaks to his journey of how he achieved his goal of earning $1,000 monthly to achieve financial freedom.
He said, “Last month I received over $1,000 of dividends. This is the first time I received over $1,000 per month while I am sitting on the couch and watching TV all day.”
Here are some of Tran’s key takeaways:
- Diversify: Tran said that “one should have at least 30 stocks in at least 10 different sectors… Diversification can help an investor manage risk and reduce the volatility of an asset’s price movements and dividend cuts.”
- Be patient and consistent: “You need time and regular monthly contribution[s] to build your sizable dividend portfolio.”
- Weigh risk and reward: “If you invest in a higher-yield company like Iron Mountain IRM, your portfolio only needs to have $132,680. However, if you invest in everyone’s favorite dividend company Johnson and Johnson JNJ, you will need at least $439,366 in your portfolio. If you like Apple or Microsoft, you will need almost $1.2 million or $1.4 million. For a low-yield dividend like Visa, you may need to invest around $2 [million]. Investing in one stock to generate $1,000 per month income would take too much risk for an individual.”
Tran also noted, “In my case, my portfolio is over $300,000 and the current yield is 4.11%. This portfolio would generate over $12,000 in dividends per year.”
The Ideal Portfolio To Make $1,000 Per Month
When you are striving towards high cash dividend yields and strong dividend growth, you need to do more than just diversify your portfolio. You will also have to research trends in the S&P 500 as well as the rising and falling share prices of the stocks you are considering.
Tran pointed out that “the ideal portfolio is difficult to implement” because stock prices shift, and companies can increase or decrease their dividends per share. But he further expands on his financial journey with the following pieces of advice:
- Each stock you invest in should take up, at most, 3.33% of your portfolio. “If each stock generates around $400 in dividend income per year, 30 of each will generate $12,000 a year or $1,000 per month.”
- “You can reduce the risk associated with individual stocks, but general market risks affect nearly every stock, and so it is also important to diversify among different sectors.”
- “The riskier the stock, the more yield it pays. The faster growth of the stock, the riskier the stock is. Stocks in financial, REIT and energy sectors tend to pay a higher yield than technology or high growth stocks.”
Additionally, Tran noted that portfolios might become unbalanced as the market shifts — investors might buy more lower-priced stocks as prices decrease, or some of their stocks might rise quickly.
He said, “Then your 3.33% of the portfolio would be like 8%.”
So, while dividends are largely passive income, it’s still important to pay attention to and rebalance your portfolio.
Final Take To GO
The bottom line is that everyone’s investment journey is different, so when modeling how you invest or diversify your portfolio, keep in mind your unique financial situation and what makes the most sense for you and your risk tolerance. Earning $1,000 per month in dividends requires a lot more investment capital than you may have previously thought — or even have available.
However, if you are in a place where these numbers make sense to you, then following these tips could help you earn a healthy passive income. You can also use them to get started with less capital and build your way up to earning $1,000 per month.
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