Dividends are an amazing wealth-building vehicle. Not only are they passive income, but they are also taxed at a lower tax rate than earned income (remember earned income pays federal tax as well as social security taxes as well). In order to generate dividend income, you will need to invest in dividend-paying stocks or dividend-paying electronic traded funds.
In order to find out the total amount of invested money you will need to generate $1,000 a month, you will need to divide $1,000 by the company’s dividend yield. The dividend yield is the cash a company pays out, expressed as a percentage. For example, AT&T’s (T) dividend yield is 7.14%.
A monthly amount of $1,000 a month means you would have an annual amount of $12,000. Let’s look at three examples of how much you would need to invest in a company to reach $12,000 annually from dividends.
Apple (APPL) – Apple costs $112 a share and has a dividend yield of 0.71%. Using our dividend formula ($12,000 / 0.0071) we would need $1,690,140 invested in APPL or 15,090 shares.
AbbVie (ABBV) – AbbVie costs $90 a share and has a dividend yield of 5.19%. Using our dividend formula ($12,000 / 0.0519) we would need $231,213 invested in AbbVie or 2,569 shares.
AT&T (T) – AT&T costs $30 a share and has a dividend yield of 7.14%. Using our dividend formula ($12,000 / 0.0714) we would need $168,067 invested in AT&T or 5,602 shares.
I would recommend diversifying the portfolio to include each of these great companies. I would probably try to reach $4,000 a year for each company. It will cost more than just going with AT&T, however you are lowering your risks considerably. Also of note, these companies pay quarterly (Feb, May, Aug, Nov) so you could either receive your quarterly paycheck and make it last for 3 months or add in other companies to cover the missing months. You are completely in control. What companies would you invest in?
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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