Can $500 a month in free income change your life? I can speak from experience that dividends can change your life and your entire outlook on the future. Once you start building a dividend portfolio, you’ll wonder why you hadn’t started sooner.
Of course, it costs money to make money with dividends. If you don’t have money, you’ll want to start creating content to build royalties. Royalties and dividends can offer similar levels of freedom.
Back to Dividends. But today’s conversation is on dividends and how to build a dividend portfolio that pays you $500/month. Your dividend portfolio will start with tiny payouts, so prepare yourself mentally.
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One of the best ways to stay motivated early in the journey is to show grace about every dividend you receive. My wife and I received $950 in dividends last month.
I was elated yesterday when I received a $7 dividend from my preferred shares ETF. I thought, “Wow, I can buy a couple of energy drinks courtesy of my dividends.” Yes, I am serious. That $7 changed my life yesterday because it allows me to buy something small without guilt.
If you can’t be thankful and humble about a $1 dividend, how will someone provide you with a $100 dividend? For more on how money works, please read “Think and Grow Rich” and “The Psychology of Money.”
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The various types of portfolios. Now, on to the fun stuff of building a dividend portfolio from scratch. I have three different types of dividend portfolios that you can explore, but I want to take another quick detour.
I recommend before starting a dividend portfolio; you should have a nice emergency fund (around $10,000). Also, don’t try to get rich from the stock market; create a wealth generator outside the stock market first. Some examples of wealth generators are renting rooms, renting a mother-in-law dwelling, renting storage sheds, renting vehicles, or writing books.
The three types of dividend portfolios are index funds (1.5% dividend yield), dividend growth investing (3-4% dividend yield), and income investing (8-9% dividend yield).
The higher the dividend yield, the less money you need to invest (and the more risk you assume). Please read “The Best Way to Fire” to compare all three portfolio types.
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High-Yield Blue-Chip Dividend Portfolio. Let’s build a high-yield blue-chip dividend growth portfolio today. This is a safe way to invest for income while still growing your nest egg with proven companies.
- Pick a target yield
- Pick nine blue-chip stocks by payout month
- Dollar-cost average until you reach $500/month
Pick a target yield. Since we are building a high-yield portfolio, let’s aim for a 5% yield. This is obtainable while keeping our investment safely with blue-chip companies.
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Pick nine blue-chip companies. You want to pick three companies from each monthly pay period. For reference, the pay periods are January (Jan, April, July, Oct), February (Feb, May, Aug, Nov), and March (Mar, Jun, Sep, Dec).
- January- Phillip Morris (PM) at 5%
- January- Altria (MO) at 8%
- January- Medical Properties (MPW) at 6%
- February- AT&T (T) at 5.5%
- February- Verizon (VZ) at 5%
- February- British Tobacco (BTI) at 7%
- March- Exxon Mobil (XOM) at 5%
- March- Ares Capital (ARCC) at 7%
- March- Vector Group (VGR) at 6%
Dollar-Cost Average. Now, you can set everything in motion on your preferred investment platform.
- Cash App- If you like to invest large lump sums into one company at a time, this is the platform for you. For example, you want to put $500 on AT&T on the 1st and $500 on Exxon Mobil on the 15th.
- STASH- If you want to spread your $1,000 a month into weekly or monthly auto-investments, STASH (affiliate link) is for you. For example, you put $25/week into each of the nine stocks for $900/month.
- M1 Finance- If you want to invest a large sum of money into all nine stocks at one time, M1 Finance is for you. For example, if you’re going to invest $500 on the 1st and 15th, across all stocks. M1 Finance will find the best deals of the day automatically.
How much will you need to invest for $500/month? So, how much will you have to invest to reach your $500/month of dividend income?
The easy way to find this answer is to find the annual total dividend income you want ($6,000). To find the necessary amount, you can divide that number by the dividend yield. It looks like this: Total annual dividends ($6,000) / dividend yield (0.05) = $120,000.
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You will need $120,000 to reach $500/month in dividend income. However, don’t fixate on this number too much. You can do little things to speed up the process and reduce the total amount. Indeed, swapping one of your blue chips for a closed-end fund or preferred share can significantly reduce the money required.
Don’t forget that companies will raise dividends, and you can also buy more shares when your stocks are out of favor. This will give you a much higher yield because the stocks will be on sale.
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Conclusion. Yes, $120,000 sounds like a lot of money, but it is possible. If we can do it, you can do it. Remember, the key to building a dividend portfolio is not what you do inside the stock market; it’s what you do outside the markets.
If you start to bring in an extra $2,000/month from an automated business, you’ll greatly accelerate your savings rate. You can reach your goals much faster than you think.
Even better, you can keep your business while you have $500/month in dividends, which diversifies your passive income. Ensure you look at the big picture of your passive income. Dividends are just a part of a larger movement to grow your wealth, income, and happiness. Enjoy!
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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. I am an Amazon Affiliate. 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. All Right Reserved Military Family Investing
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