Dividend income can be a great way to supplement your income and build your wealth over time. And while $100 a month might not sound like much, it can add up quickly if you invest in quality dividend stocks and reinvest your dividends.
If you want to make $100 a month in dividend income, you'll want to have a plan and strategy to help you reach your goal.
In this post, I'll explore how to make $100 a month in dividends, some of the best ways to grow your dividend portfolio, and much more. Let's get started!
What are Dividends?
If you're not exactly sure what a dividend payment is, it's pretty simple to understand!
A dividend payment is a distribution of a company's profits to its shareholders.
When a company earns a profit, it can either reinvest that money back into the company or pay it out to shareholders in the form of dividends.
Dividend income is simply the cash payments that shareholders receive from these distributions.
Not every stock pays a dividend, however.
For example, newer, high growth stocks may opt to keep their dividends to further grow the company (and share price).
This is the main different between dividend investing and growth investing.
Dividend stocks tend to be much more mature companies that have generated years (or even decades) of consistent profits.
Many stocks pay dividends quarterly (every 3 months), but some pay monthly or even annually.
How to Make $100 a Month in Dividends
If you want to make $100 in monthly dividend income, you're going to need to do some research and work to reach your goal. While it's not going to happen overnight, it's easier than you think!
Determine How Much Money You Need
First, you'll need to determine how much money you'll need to make $100 a month in dividends.
This will depend on how much money in dividends the company pays out.
For example, if a company pays out only 2% for each $100 in stocks, to make $100 a month in dividends, you'd need to own $60,000 worth of shares.
However, if the company pays out 4% in dividends, you'd only need $30,000!
It's worth noting that you cannot use the dividend yield of the company to easily determine how much money you need. The dividend yield is based on the company's stock price – not a percentage based on $100.
Check out the chart below for help determining how much money you'll need to invest to make $100 a month from your dividend portfolio.
Find Dividend Stocks That Pay Monthly
Not all dividend stocks pay monthly. Some dividend stocks will pay quarterly, semi-annually, or even just once a year.
There are certain stocks that pay dividends monthly, so it's a good idea to take a look at these options if you want a consistent income from your investment.
But don't throw out a stock just because it doesn't offer a monthly dividend. There are plenty of stocks that pay an annual dividend that you can use to make more dividends in the future.
The big difference between monthly dividend payments and a more traditional annual or semi-annual dividend payment is the power of compound interest.
If you choose to reinvest your dividends to purchase more shares, you can earn even more monthly income from your dividend portfolio.
However, by choosing a stock that pays a quarterly dividend, it will take slightly longer to see the exponential growth.
Invest in a Variety of Stocks Through a Dividend ETF
One of the biggest risks you can assume when investing is picking individual stocks to invest in.
This is because you're essentially putting all your eggs in one basket.
If the company you've invested in goes bankrupt, your entire investment is gone.
But, if you invest in a dividend ETF, you're investing in a basket of stocks that each pay dividends.
This means that even if one stock takes a hit, the other companies in the ETF will help to balance out any losses.
Below is a great list of dividend ETFs to consider depending on the yield you desire.
When you're looking for a dividend ETF, you want to find one with a good yield and a low expense ratio.
The expense ratio is the percentage of the fund's assets that are used to pay for expenses.
For example, if a dividend ETF has an expense ratio of 0.5%, that means $0.50 of every $100 you have invested will go towards paying the fund's expenses.
Dividend ETFs are a great way to optimize your returns from your dividend portfolio while minimizing risk.
Analyze Dividend Yields and Payout Ratios
While many investors might over-analyze the dividend yield of a company, it's important to remember that you're looking for monthly dividend income, not an annual yield.
You'll want to find a stock with a good dividend yield, but don't forget to look at other factors like the company's history of dividend payments and whether or not the dividend is sustainable.
The dividend yield is based on the current share price of one stock and the amount of dividends it pays.
For example, if a company's share price is $100 and it pays an annual dividend of $4 – it's dividend yield would be 4%.
Another common metric you can analyze is the dividend payout ratio. This metric tracks how the company pays out dividends compared to the companies earnings per share (EPS).
When comparing dividend yields and the dividend payout ratio, many investors prefer the payout ratio because it gives a better picture of the company as a whole.
For example, some companies pay dividends even if they are making very little profit. The dividend yield would suggest it could be a great way to make passive income. However, the dividend payout ratio would show otherwise.
What is a Good Dividend Yield?
Dividend investors often ask what a “good” dividend yield is.
The answer to this question can be different for each person, but in general, most investors look for a dividend yield that is equal to or greater than 3-4%.
This amount provides a good balance of risk and reward.
However, remember that dividend yields can change over time. A company's share price might go up or down, which would change the dividend yield.
The company might also increase or decrease the amount of dividends it pays out. So, even if a company has a high dividend yield today, there's no guarantee it will stay that way in the future.
If you want to continuously make $100 a month in dividends, you'll have to keep an eye on your portfolio and adjust your strategy as companies evolve.
Look for Dividend Stocks with a History
Finding dividend stocks with a history of returns is a good way to ensure you're picking a company with a solid track record.
Many companies offer dividends, but not all of them have been around for a long time. The longer a company has been paying dividends, the more likely it is to continue doing so in the future.
You can find a company's dividend history by looking at its financial statements or by searching for it online.
A good rule of thumb is to avoid companies that have reduced or eliminated their dividends in the past.
However, some companies may have had to reduce or eliminate their dividends because of tough economic times or other circumstances.
Look for Dividend Growth
Whether you want to make $100, $500, over $1,000 a month in dividends, choosing stocks that are setup for dividend growth is essential.
This means that their dividend payments should increase over time.
For example, if a company has been paying a 2% dividend for the past five years, and it's seeing continued growth on its' bottom line, there's a good chance they might increase their dividend payment to shareholders.
Take Note of Payment Schedule
When browsing dividend stocks, there's sure to be a few that are paying dividends soon. While these stocks will be priced accordingly, this can be a simple way to get the ball rolling.
By noting when your dividend stocks pay dividends, you can setup your portfolio to earn monthly dividends without much effort.
To find when the company is paying its next dividend, you can look for the ex dividend date on the company's website or on a financial calendar.
This is the date where you must own the stock before to receive the next dividend payout.
Budget to Invest
Budgeting is important if you want to reach financial freedom or make $100 in monthly dividend income.
If you spend ever dollar that you make, you won't have any money leftover to invest and reach your financial goals.
By adding investments into your budget you can prioritize your financial health and reach your goals much faster.
For example, even if it's just $50 a week – investing this money can provide monthly passive income for your finances. While it might seem like much, it can become a fortune over time.
Invest in Multiple Industries
There are plenty of dividend paying stocks out there, but you want to make sure your stocks are in different industries.
Just like investing in dividend ETFs is a good idea, if you do choose to pick several stocks or ETFs, it's best to have a diverse range of industries you invest in.
By investing in a variety of industries you can reduce your risk and ensure you'll still receive dividend payments even if one or two industries have a tough year.
For example, investing in tobacco stocks may not be the best move in 2022 as governments take aim at eliminating these products.
On the other hand, investing in renewable energy like carbon capture stocks might be a strong play as society shifts its priorities to environmentally friendly practices.
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How to Invest in Dividend Stocks
If you're new to dividend investing, you might be wondering how to get started.
Luckily, investing in dividend stocks is easily than you might think.
As a bonus, Acorns is offering new users $10 completely free with the link below!
Dividend Investing Tips
Below are a few tips to help you invest wisely and earn passive income by investing in the stock market through dividend stocks.
Build Dividend Income Slowly
Making $100 in monthly dividends isn't an overnight process unless you have a large amount of money you can to invest.
By slowly adding to your dividend investing portfolio you can start making a good amount of money in the stock market.
Any excess cash you have can help to grow your dividend portfolio.
Sometimes, it might be better to ditch the annual vacation and instead, use that money to help you make $100 in monthly dividends.
Reinvesting dividends is critical if you want to make $100 in monthly dividends.
Whether your particular stock pays an annual dividend or monthly dividends, you'll want to use dividend reinvestment plans to maximize your returns.
But what exactly does it mean to reinvest dividends?
In short, reinvesting dividends means that you take the cash payments your stocks are making and use it to purchase more shares of the stock.
This increases the number of shares you own, which in turn increases the future dividends you'll receive.
This will allow your investment portfolio to grow exponentially over time.
Use Retirement Accounts
Retirement accounts can be a great option if you need to invest for the future while saving money on taxes.
With retirement accounts like a 401k or IRA, you can invest pre-tax money and let it grow until you retire.
However, there are some limitations that come with these accounts. If you want to withdraw money before retirement age, you'll face both a penalty and taxes owed on the money you withdraw.
Consider Real Estate Investing
While many people think of dividend investing as the only way to earn monthly passive income in the stock market, it's certainly not alone.
In fact, you can invest in real estate in the market through a variety of ways.
For example, investing in a real estate investment trusts (REITs) can be another simple way to get started in real estate.
There are also methods to invest in real estate outside of the market to make $100 a month in residual income.
As a bonus, Fundrise is giving new investors $10 free – making it a good investment to build a diverse portfolio.
Real estate investments have similar returns as stocks, but one thing many investors like is that it is a tangible investment, meaning you can see and touch your investment.
Additionally, if you have a low risk tolerance, investing in real estate can help you diversify your investment portfolio outside of your brokerage account.
This can be beneficial if the stock market takes a turn for the worse. Create your Fundrise account below to start investing with as little as $10!
Use a Brokerage Account for Flexibility
A brokerage account is a good option for investors who want more control of their money, as opposed to retirement accounts where there are limits and restrictions.
There are no limits to what you can do with a brokerage account so you can buy stocks and sell them whenever you want with no penalties.
It is worth noting that if you trade the same investment multiple times per day, you may be flagged as a day trader, which can put limits on your account unless you are a professional trader.
Use Dollar Cost Averaging
If you do have extra money to invest, you'll want to deploy it in such a way so that you aren't crushed by a sudden decrease in the market.
The best way to do this is through dollar cost averaging.
This method of investing allows you to purchase shares over time, regardless of the stock price.
This will help you avoid buying all of your shares at a high price and then watching the price drop.
Don't Forget About Taxes
Unfortunately, Uncle Sam never fails to collect his fair share of taxes at the end of the year.
When you participate in passive investing, your taxable income will increase.
This means you'll need to plan for the added tax burden and make sure you have enough money set aside to pay your taxes.
Final Thoughts on Making $100 a Month in Dividends
If you want to make $100 a month in dividends, you'll need to build a portfolio with around $30,000.
However, this will depend on the dividend yield of the stocks you invest in.
If you find stocks with high dividend yields, you might need slightly less or if you find stocks with a lower dividend yield, you might need more.
There are many ways to grow your monthly dividend income such as reinvesting your dividends, budgeting to invest, and slowly increasing your position size over time.
The important thing is to start somewhere and be patient as you work towards building a large enough portfolio to generate $100 a month in dividends. You'll get there sooner than you think!
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