The goal of any investment you make typically centers around maximizing your total returns and payout ratio. When it comes to dividend payouts or a high dividend-paying stock, understanding the nuances of what dividend stocks to buy and how dividend payments work 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 a company makes to its shareholders. Though companies are not required to pay dividends, many make it a habit to do so, especially in financially fruitful consecutive years.
Companies have no timetable to make dividend payments or even raise their dividends, but they typically pay regularly — often monthly, quarterly or twice each year. A class of stocks referred to as “dividend aristocrats” are those that have increased their 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 per month in dividends to achieve financial freedom: “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 says 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 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 notes, “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 In Dividends
When you are striving towards high dividend yields and strong dividend growth, you need to not only diversify your portfolio, but also research trends in the S&P 500 as well as rising and falling share prices of stocks you are considering.
Tran points out that “the ideal portfolio is difficult to implement” because stock prices shift and companies can increase or decrease their dividends, 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 notes 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. “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
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. 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.
FAQHere are some answers to frequently asked questions about how to make $1,000 a month in dividend stocks.
- How much do you need to invest to make $1,000 per month in dividends?
- Making $1,000 per month in dividends requires you to invest hundreds of thousands of dollars in dividend stocks. Though there is not technically an exact amount, many experts mark the range as being between $300,000 and $400,000.
- Your investment also depends on the dividend yields of the stocks you buy for your portfolio when you diversify. Your unique financial situation may or may not allow you to spend this kind of money to make this kind of money, so be aware of the risk versus reward ratio.
- How do you make $1,000 in passive income?
- One form of passive income is earning money off of dividends and interest as it compounds. You could also shift gears to the housing market and purchase a rental property rather than investing in stocks. You could set your price to not only cover the mortgage but also mark it up $1,000 over what would cover your costs to make a profit each month.
- How much do you need to invest to make $500 in dividends?
- In order to make $500 monthly in dividends, some experts advise that you would need a dividend stock portfolio worth between $170,000 and $240,000. As these are just estimates, the actual number will depend on which stocks you invest in and the dividend yields of those stocks. Keep in mind your ideal timeline for making this money and how quickly you'd like to see dividend growth, as it can remain unpredictable.
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- My Dividend Snowball. "How I Made $1000 A Month In Dividends."
- Fresh Dividends. 2023. "How to make $1,000 a month in dividends."
- Fresh Dividends. 2023. "How to make $500 a month in dividends in 5 steps."