How much do you have to invest to get $500 in dividends each and every month?
It all depends on your portfolio’s dividend yield. With a 10% yield and monthly payout schedule, you can get to $500 a month with only $60,000 invested. That is, $6,000 per year paid on a monthly basis. Unfortunately, most stocks don’t have yields anywhere near 10%. Many do have high enough yields to get you to $500 a month with diligent savings, but don’t pay monthly. In this article, I will explore two methods for getting to $500 per month in dividend income: the slow way and the fast way.
The safe but slow way
The safest way to get to $500 per month in dividend income is to simply invest in dividend-paying index funds. Such funds are among the least risky equity investments you can buy, as they are very diversified and have low fees. The flip side is that their yields are typically quite low, so you need to save lots of money in order to make $500 per month off them.
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Consider the IShares S&P/TSX Composite Index Fund (TSX:XIC), for example. It’s a broad market index fund based on the TSX Composite Index – the index of Canadian stocks trading on the Toronto Stock Exchange. It has 240 stocks, which provides plenty of diversification and low risk. Also, it has only a 0.06% MER, which means that if you invest in the fund, you won’t lose too much to management fees. It is, on the whole, a compelling package. The downside is that XIC only has a 3% dividend yield, so you need to invest a whole $200,000 before you can get to $6,000 a year in dividend income.
The risky but fast way
As we’ve seen, it takes a decent-sized chunk of change to get to $500 per month in passive income with index funds. That’s just the price you’ll have to pay if you want to achieve substantial dividend income safely.
If you’re willing to assume a little more risk, you could consider high yield stocks like First National Financial (TSX:FN). First National Financial is a non-bank lender whose shares yield 6.5%. With a 6.5% yield, you only need to invest about $92,500 in order to get to $500 per month in dividend income. Best of all, FN is a monthly pay dividend stock, meaning you do in fact get that $500 each and every month. With the previous example, the XIC ETF, I said you could get a sum each year that averages out to $500 per month. Here, I’m talking about an actual $500 monthly cashflow.
How safe is First National Financial’s dividend? Going by the payout ratio, it appears pretty safe. The company pays out just 58% of its earnings as dividends, which is acceptable. Also, the company is performing well this year. In its most recent quarter, it delivered:
$142 billion in mortgages under administration, up 10%.
$563 million in revenue, up 43%.
$83.6 million in net income, up 108%.
All in all, it was a very strong showing. First National appears to be doing well enough to justify its 6.5% dividend yield.
Before you consider First National Financial Corporation, you'll want to hear this.
Our market-beating analyst team just revealed what they believe are the 5 best stocks for investors to buy in November 2023... and First National Financial Corporation wasn't on the list.
The online investing service they've run for nearly a decade, Motley Fool Stock Advisor Canada, is beating the TSX by 24 percentage points. And right now, they think there are 5 stocks that are better buys.
Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
With a 10% yield and monthly payout schedule, you can get to $500 a month with only $60,000 invested. That is, $6,000 per year paid on a monthly basis. Unfortunately, most stocks don't have yields anywhere near 10%. Many do have high enough yields to get you to $500 a month with diligent savings, but don't pay monthly.
To make $1,000 per month in dividends, it's better to think in annual terms. Companies list their average yield on an annual basis, not based on monthly averages. So you can make much more sense of how much you might earn if you build your numbers around annual goals as well.
However, this isn't always the case. If you're looking to generate $300 in super safe monthly dividend income (note the emphasis on "monthly" income), simply invest $43,000, split equally, into the following two ultra-high-yield stocks, which sport an average yield of 8.39%!
To generate $5,000 per month in dividends, you would need a portfolio value of approximately $1 million invested in stocks with an average dividend yield of 5%. For example, Johnson & Johnson stock currently yields 2.7% annually.
A well-constructed dividend portfolio could potentially yield anywhere from 2% to 8% per year. This means that to earn $3,000 monthly from dividend stocks, the required initial investment could range from $450,000 to $1.8 million, depending on the yield.
That's right; you save over $30,000 if you want to create $400 per month in passive income. Furthermore, this could be cash set aside in your TFSA, meaning it would be all tax free, with plenty left over for other investments.
Earning $2,000 in monthly passive income sounds unbelievable but is achievable through dividend investing. However, the investment amount required to produce the desired income is considerable. To make $2,000 in dividend income, the investment amount and rate of return must be $400,000 and 6%, respectively.
Making $4,000 a month based on your investments alone is not a small feat. For example, if you have an investment or combination of investments with a 9.5% yield, you would have to invest $500,000 or more potentially. This is a high amount, but could almost guarantee you a $4,000 monthly dividend income.
The average dividend yield on S&P 500 index companies that pay a dividend historically fluctuates somewhere between 2% and 5%, depending on market conditions. 7 In general, it pays to do your homework on stocks yielding more than 8% to find out what is truly going on with the company.
This broader mix of stocks offers higher payouts and greater diversification than what you'll get with the Invesco QQQ Trust. And if you've got a large portfolio totaling more than $1.1 million, your dividend income could come in around $50,000 per year.
Investing $500 per month is a lot for many people. But by reducing your spending in some areas, you'd be surprised at how much you can set aside with a proper budget. With enough time and a proper investment, this simple strategy could even turn $500 per month into $1 million.
Introduction: My name is Carlyn Walter, I am a lively, glamorous, healthy, clean, powerful, calm, combative person who loves writing and wants to share my knowledge and understanding with you.
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