Are you looking to make $500 a month in dividends?
There are many reasons dividend investing is a great way to build passive income and reach financial freedom.
In this post, I'll explore how to make $500 a month in dividend income, some of the best dividend stocks to grow your money, and much more. Let's get started!
6 Simple Ways to Make $500 a Month in Dividends
Earning dividend income each month is something many people dream about, but it's entirely possible if you put your mind to it. Below are some of the best ways to make $500 a month in dividends and live off of dividends.
Determine How Much You Need to Invest
To make 500 dollars a month in dividends, you'll need to know how much you need to invest by doing some pretty simple math. By analyzing the dividend payments a company pays to shareholders you can have a good idea of the monthly passive income you can make with a certain stock.
In most cases, it's going to take a nice chunk of cash to reach $500 a month in dividends. We'll explore more on this below!
Analyze Dividend Yields to Find High Yield Dividend Stocks
Dividend stocks have what is known as a dividend yield that is a single percentage that helps investors understand how much money they can expect to make in dividend payments if they invest in the company.
The dividend yield is based on the share price of the company and the stocks annual dividend income. This means that if a company has a current share price of $1,000 and it yields $50 annually in dividends, the stocks dividend yield would be 5%.
If you want to make $500 a month in dividends and the stock you invest in has a 4% dividend yield paid annually, you would need to invest $150,000 to make $500 a month in dividends.
However, this will all depend on the dividend yield of the company.
For example, if a company pays a dividend yield of 3% annually, you would need to invest $200,000 to reach your desired dividend income portfolio.
Reinvest Dividends to Maximize Returns
If you aren't completely familiar with compound interest – now's your chance to learn. There are many compound interest investments (like dividend stocks) that you can invest in to see exponential returns on your money.
When you automatically reinvest your dividend income you can quickly see the benefit of compounding returns. If you can find stocks that pay monthly dividends, you can purchase more stocks each month to grow your income.
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Find Stocks that Pay a Monthly Dividend
Stocks can choose to pay dividends however they'd like. For some companies, they might pay monthly dividends, other companies might pay an annual dividend.
Many dividend investors prefer a stock that pays a monthly dividend because they income that is generated can then be used to purchase more dividend stocks.
This is compound interest hard at work. There are many stocks that offer monthly dividend income to grow your dividend portfolio. For example, Realty Income is a great company that offers monthly dividends with a dividend yield of 4.2%.
Check out this video to learn more about building cashflow with monthly dividends!
Automate Investing to Make Monthly Dividend Income
Automating your finances is a great way to stay on track to reach your financial goals and make $500 a month in dividends.
By having money automatically transferred from your checking account into your brokerage account you can invest to make monthly dividends without much work at all.
One of the best way to do this is through Acorns. Acorns will round up your cash purchases and invest for you. For example, if you make a purchase of $2.75, Acorns will round your purchase to $3 and invest the extra $.25. While this might not sound like a lot of money – it adds up with every purchase you make.
Find a Stock with a Growing Dividend
Just because a stock has a current dividend yield of 4% doesn't mean it will always be that way. Try to find stocks that have dividend growth in the past.
Most companies will hike their dividend payments if the company has strong financial performance for the year.
How Many Dividend Stocks Do I Need to Make $500 per Month in Dividends?
So now that you understand how much of an investment you'll need to make $500 in monthly dividend income, how many stocks do you need?
There are a few different ways you can go about this.
Invest in a Single Dividend Stock
One way to reach your goal is to put all of your capital into a single dividend stock.
This can be extremely risky, however, because if the stock price falls, you could lose a lot of money.
And if the company cuts its dividend, you'll be in trouble.
So while this strategy can work, it's generally not recommended.
Invest in a Basket of Dividend Stocks
A better option is to invest your money into a group of dividend stocks, often referred to as a dividend stock portfolio or basket.
This approach is much less risky than investing in a single stock, because if one stock falls in value, the others may offset the loss.
Plus, if one company cuts its dividend, you'll still have other stocks that are paying dividends.
Invest in a Dividend ETF
Investing in a dividend ETF is one of the best ways to achieve a diversified portfolio of dividend investments to make $500 per month in dividends.
With a dividend ETF, you get the diversification of a basket of dividend stocks, but you don't have to choose the individual stocks.
The ETF automatically does that for you – so you don't have to waste time analyzing investments.
Plus, the ETF is traded on a stock exchange, so it's easy to buy and sell.
There are some fees that come with an ETF however. These are very low and almost negligible for most investors.
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Best Dividend Stocks to Consider
While there are hundreds of potential dividend stocks you can invest in, some of the ones listed below have a strong history of delivering dividend payments to investors. While the dividend yields of companies are not the only consideration for dividend investors it's typically used to evaluate the current standing of a business.
The company has a dividend yield of 2.1% and has increased its dividend payments for 60 consecutive years. 3M has strong consumer brands across different industries that are recognized worldwide including brands such as Post-it, Ace, Scotch, and more. 3M is a member of the dividend aristocrats list.
The company has a dividend yield of 3.5% and has increased its dividend payments for 24 consecutive years. This business operates in the heavy machinery, electronics, and robotics industry and is a leader in the energy, automation and digitalization markets.
This company is a high yield dividend stock with dividend earnings of 5.8% annually distributed to shareholders. AT&T is a well known telecommunications company that operates around the United States with a market cap of over $236 billion.
The stock's dividend yield of 1.7% and has increased its dividend payments for 11 consecutive years. While Apple doesn't necessarily have one of the highest dividend yields – it's a great long term stock that has tremendous growth potential.
Bank of America Corp.
The company has a dividend yield of 2.6% and has increased its dividend payments for 10 consecutive years. Bank of America is the largest bank in the United States and provides financial services including consumer banking, commercial banking, private banking, investment banking, trading, and wealth management to individuals and businesses worldwide.
The company has a dividend yield of 3.2% and has increased its dividend payments for 52 consecutive years. Coca-Cola is the world's largest beverage company and offers a wide range of beverage brands to over 200 countries.
Tips to Optimizing Your Dividend Portfolio
There are many dividend stock recommendations to take into consideration, but you'll want to craft a portfolio strategically to maximize your returns and limit risk. Below are some tips to help you earn dividend payments routinely.
Pick Dividend Stocks with a History
Just because the dividend yield of a stock is high, doesn’t mean it’s poised to stay elevated.
You’ll want to search for dividend stocks that have a history of raising dividend payments to investors and are positioned strongly in the market.
Some investors will take their analysis a step further by looking at the leadership team and competitive landscape of the business to decide whether the stock is worth their money.
Ultimately, you want to look for companies that you think are undervalued or are in a position to grow and boost their dividend payments and avoid a dividend cut.
Consider a High Dividend Yield Mutual Fund
Investing in individual stocks can be more risky and hurt your total dividend income portfolio.
By spreading your investments out over a variety of stocks, your dividend portfolio can be much stronger and yield higher returns.
Finding mutual funds and other investments with higher dividend yields is a great way to keep your portfolio diversified and maintain returns while limiting risk.
Having a diverse portfolio is essential is you want to reach financial independence and live without financial stress.
Invest in Real Estate Investment Trusts
If you want to invest to make 500 dollars a month in dividends – investing in a real estate investment trust can be a great option. You can think of a REIT similar to a mutual fund or ETF in that it owns many different assets. They invest in real estate on behalf of shareholders, typically by financing its own acquisitions.
As a shareholder, you are entitled to your share of the income generated by the trust, as well as a share of the proceeds upon sale. Some will offer monthly dividend payments that compound quickly to reach your goal.
REITs can be a great way to get started in real estate as a first time investor because you don't need to have enough money to purchase an entire property.
Monitor Your Holdings
No matter how great your stock picks are, you need to keep a close eye on your holdings.
Dividend stocks can go through periods of price appreciation and depreciation, so it’s important to make sure the underlying fundamentals of the company are still in place.
You don’t want to be in a position where you sell a stock that has appreciated significantly and is on the brink of a dividend increase. You are committing an investing mistake by selling something that could have provided you with years worth of benefits.
Don't Get Caught Up in the Hype
Some investors pay more attention to the dividend yield of a stock more than other components. This can lead to poor investing decisions and reduced returns.
Just because a stock has a larger dividend yield doesn’t mean it’s the best option for your money.
Try to do your research before going all in.
How Long Does it Take to Generate $500 a Month in Dividend Income?
There are many factors that will help you to determine how long it will take you to make $500 a month in dividends.
The most important factors include how much money you have to invest and the average dividend yield of the stocks you purchase.
For example, if you're looking for a monthly income of $500 from dividends and the annual dividend yield of a stock is 5%, you could start making 500 dollars a month with $120,000 invested.
For new investors, it can take some time to build your income to this level without a massive portfolio. Depending on your risk tolerance, current income, investment balance, and portfolio performance, it can take anywhere from a one year to a decade to make $500 a month in dividend payments.
What to Look for in Dividend Stocks?
There are innumerable factors that determine the value of a company, and that includes dividend stocks.
When deciding whether or not to invest in a company, below are a few things you might want to analyze.
While it can be difficult to accurately determine whether a company has strong leadership, you might be able to spot a company with poor leadership.
By looking at a companies performance over the past few years, you can be the judge of whether the leadership team is doing a good job.
While many dividend stocks tend to be more mature, there is still value in having an innovative company that is swift to make changes and introduce new products or services.
We've all seen a company that has eventually filed for bankruptcy after years of stagnant innovation.
Strong History Of Paying Dividends
One of the more obvious factors to analyze is how long the company has paid dividends. If your monthly goal is making $500 in dividends, try to see how long the company has made (or increased) it's dividend payments.
What about Taxes on My Dividend Income?
Just like any investment, the income you receive from dividend paying stocks is taxable.
Even if you have a dividend reinvestment plan, your income is taxable.
Dividend paying stocks are a great way to invest, but you need to remember that the government still wants its share.
The exact amount you will pay in taxes depends on multiple factors including:
- Your overall income
- The state you live in
- How long you hold the stock
Generally, long-term capital gains are taxed at a lower rate than short- term.
This means that if you hold a stock for more than a year before selling, you will likely pay a lower tax rate on the sale.
The only way to avoid taxes on dividend income is if it is being held in a retirement account like an IRA or 401k.
Related Reading: Passive Income Tax Rate
Other Ways to Make $500 a Month Investing
While dividends are a great way to make $500 a month investing, there are a variety of other methods to grow your income and strengthen your financial health without dividends.
Invest in Art to Make $500 a Month
You might be thinking to yourself “What the heck is art investing!?” I get it. Investing in art is a newer alternate investment you can use to grow your money outside of the stock market.
By using a platform like Masterworks you can earn great money by investing in popular pieces of art that were traditionally only available to those with large sums of money.
Masterworks has yielded strong returns averaging 15% since it's inception so it's definitely worth a look. Use the link below to get started!
Invest in Real Estate to Earn Passive Income
Dividend stocks are extremely popular because they generate passive income, meaning you don't have to actively work to make money. In a similar fashion, real estate investing is another awesome way to make money passively outside of the stock market.
By using platforms like Fundrise you can invest in real estate assets without the headache of dealing with tenants, maintenance, or other issues that come with a rental property.
The best part? It only takes $500 to get started. Sign up below to start making money with real estate!
Invest in Digital Assets
Digital real estate like websites, blogs, or other assets can be a superb method to make money online an earn passive income.
While these investments don’t pay dividends – they make money through a variety of methods.
For example, starting a blog can make passive income through display advertising, affiliate marketing, or by selling digital products to visitors.
Another benefit of this form of investing is the small barrier to entry. Most forms of digital real estate don’t require a massive lump sum of money or excess cash to start.
Many options will cost less than a few hundred dollars of extra money to start. There is one trade off, however. The small cash investment you make, the more work you will have to do.
Ultimately, digital assets can be a good investment for many people looking to grow their wealth and reach financial freedom. If you have some extra time and way to make money online, this can be a great option.
Invest in Cryptocurrency to Earn $500 a Month
If you want to make money investing without stocks, cryptocurrency can be one way to make more money. While it can be extremely speculative in some cases, it has become much more mainstream over recent months and years.
One benefit of crypto investing is that it's an easy way to diversify your portfolio.
My favorite platform for investing in cryptocurrency is Coinbase. When you register with the link below you can earn free money in crypto!
Invest in Index Funds
While stocks that pay dividends are a great method to invest in the stock market, that’s just the beginning.
Depending on how much money you have to invest, there are many companies you can invest in to diversify your portfolio.
How to Invest in Dividend Stocks?
If you want to get started investing in stocks with dividend payouts there are a few methods to consider depending on your circumstance.
Invest with a Brokerage Account
Having a brokerage account is a great way to invest in the stock market.
A brokerage account allows you to invest your post tax income into the stock market to earn dividends and grow your money. You can buy and sell your investments at any time without a penalty.
With a traditional brokerage account, you will need to account for taxes that arise from the sale of stock throughout the year. If you hold a stock for less than 2 years, you will have to pay short term capital gains tax on any proceeds you earn which can amount to over 30% for some individuals.
As a bonus, you’ll get $10 completely free when you register with the link below.
Use Retirement Accounts
Building your dividend income portfolio with retirement accounts like a 401k or IRA is a great way to save money for your later years of life and reduce your tax burden for the year.
A 401k allows you to invest pre tax money into the stock market and boost your monthly dividend payments although you cannot utilize the money until you reach retirement age without a penalty.
Final Thoughts on Making Money Dividend Investing
When it comes to making money from dividends, there are many options to consider for your investment portfolio.
To make $500 a month in dividend income, you'll need to determine your risk tolerance, how much you need to invest, and pick some dividend stocks to build out your portfolio.
Earning monthly dividend payments from your stock is an awesome way to make passive income just like other investments including real estate and apartment investing. By combining several methods of investing you can avoid having all your eggs in one basket to optimize your returns.
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