We all want to make passive income, and dividend income is certainly a great option to earn monthly income without having to do any work.
Imagine what you could do with an extra $1,000 a month. You could pay down debts, pad your savings account, or just have some extra spending money. It sounds great, and it's completely possible.
If you want to reach financial freedom, using dividends is a great way to achieve your goals.
In this post, I'll explore how to make $1,000 a month in dividends, some good dividend paying stocks to consider, and much more. Let's get started!
In This Article
What is Dividend Income?
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.
It's similar to other passive income methods like real estate investing. If you own a rental property you can earn monthly rental income in the same way you can earn dividends.
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How to Make $1,000 a Month in Dividends
If you want to make $1,000 in monthly dividend income, you're going to need to do some research and work to reach your goal. By investing in income-producing assets like dividend stocks you can generate monthly returns from your investments to take control of your finances.
Determine How Much Money You Need
First, you'll need to determine how much money you'll need to make $1,000 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 $1,000 a month in dividends, you'd need to own $50,000 worth of shares.
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 $1,000 a month in dividend income.
Find Dividend Stocks That Pay Monthly
Not all dividend stocks pay monthly income. 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.
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 $3 – it's dividend yield would be 3%.
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.
Chasing higher dividend yields is not wise and can even lead to losing money when investing in dividend stocks – so be careful and always look at the company as a whole.
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.
Look for Dividend Growth
Whether you want to make $500 a month in dividends or over $1,000 a month, choosing stocks that are setup for dividend growth is essential.
This means that their dividend payment 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.
Budget to Invest
Budgeting is important if you want to reach financial freedom or make $1,000 in monthly dividend income.
Why?
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.
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.
After all, would you really want to own cruise line stocks in 2020? While they offered large dividend payments – they were cut dramatically because of the COVID-19 pandemic.
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.
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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.
You can use an investing app like Acorns to get started. You can purchase individual stocks, ETFs, mutual funds, and other stock market investments with as little as $5.
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.
Build Dividend Income Slowly
Making $1,000 in monthly dividends isn't an overnight process unless you have a large amount of money you need to invest.
By slowly adding to your dividend investing portfolio you can start making a good amount and start living off dividends.
Reinvest Dividends
Reinvesting dividends is critical if you want to make $1,000 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, reinvest 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.
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.
This can be a great way to grow your nest egg while also earning dividends in the stock market.
Consider Real Estate Investing
While many people think of dividend investing as the only way to earn 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 (REIT) can be one easy way to get started in real estate.
There are also methods to invest in real estate outside of the market to make $1,000 a month in residual income.
For example, rental real estate is another great option to earn monthly rental income to reach your goals.
You can use a platform like Fundrise to get started investing in apartment buildings and other residential real estate assets.
Real estate is a good investment for anyone looking to make money passively.
Use a Brokerage Account for Flexibility
A brokerage account is a good option for investors who want more control of their money.
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.
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 stock price.
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.
Dividend Stock Options to Consider
Below are some quality dividend stocks you could consider for your portfolio. You can also checkout Stocktrades.ca to find more. Dan does a great job evaluating dividend stocks to find the best returns and performance.
IBM
IBM has been around since 1911 and has a long history of paying dividends.
The company currently pays a quarterly dividend of $1.62 per share, giving it an annual yield of 4.7%.
Microsoft
Microsoft is a technology giant that has been in business since 1975.
The company pays a quarterly dividend of $0.46 per share, giving it an annual dividend yield of 2.1%.
Johnson & Johnson
Johnson & Johnson is a health care company that has been in business since 1886.
The company pays a quarterly dividend of $0.84 per share, giving it an annual dividend yield of 2.4%.
Chevron
If you want to add diversity to your portfolio, Chevron is an oil giant that has shown stability over the years.
The company has been in business since 1879 and currently pays a quarterly dividend of $1.42 per share, giving it an annual yield of 3.46%.
Realty Income
If you're looking for higher dividend yield stocks, Realty Income is a great option. This is a real estate company that pays a monthly dividend
The company pays a monthly dividend, which currently comes out to $0.22 per share.
This gives the stock an annual dividend yield of 4.4%.
Related: What to Do with 50k?
Final Thoughts on Making $1,000 a Month in Dividends
If you want to make $1,000 a month in dividend income you'll need to do some research and have some cash on hand to invest.
There are plenty of metrics you can use to analyze a stock like the dividend yield or payout ratio but you'll want to be careful relying on these alone.
By investing in different industries and reinvesting your dividends, you can start making passive income from the stock market each month.
To get started, try using an investing app like Acorns and claim your free $10 when you create an account!
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