Would you like to know how to make $500 a month in dividends?
I hope you answered yes. Because I’m going to show you 5 steps to build a dividend portfolio for $500 in dividends every month.
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For an overview, let’s first look at the 5 steps.
How To Make $500 A Month In Dividends: Your 5 Step Plan
- Choose a desired dividend yield target
- Determine the amount of investment required
- Select dividend stocks to fill out your dividend income portfolio
- Invest in your dividend income portfolio regularly
- Reinvest all dividends received
Then, when we are done, you will know exactly how to make $500 a month in dividends. And be able to get busy building your dividend income portfolio 1 stock at a time.
1. For $500 A Month In Dividends Choose A Desired Dividend Yield Target
Your first step to making $500 in monthly dividends is to choose a dividend yield target.
What Is Dividend Yield?
The dividend yield is the annual amount of dividends paid by a company divided by the company’s stock price.
For example, let’s assume XYZ Company pays $3 per share in dividends during the year. And XYZ’s share price is $100. Then, the dividend yield is, $3 divided by $100, or 3%.
When I choose dividend stocks, I prefer them with yields between 3% and 5%. Why? Because the dividend yield tells me some important information.
What Can A Stock’s Dividend Yield Tell Us When Seeking Monthly Dividends?
Stocks with dividend yields of less than 3% simply do not pay enough, in my opinion. On the other hand, stocks with dividend yields greater than 5% may indicate a higher degree of investment risk.
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Of course, I make exceptions to my 3-5% dividend yield rule of thumb. But, it’s a good starting point for choosing dividend growth stocks.
Why is choosing a target dividend yield important? Let’s cover that next, in step 2.
2. Determine The Investment Required To Make $500 A Month In Dividends
Each holding on dividend income stock portfolio will have a dividend yield. Furthermore, each dividend stock will then combine to generate a dividend yield for the entire dividend income portfolio.
Calculating A Dividend Income Portfolio’s Yield
So, let’s say your dividend portfolio yields 4% in total. That’s right in the middle of my 3-5% range. Your portfolio yield may be different.
Calculate yours by taking the annual amount of dividends paid from all your dividend stocks. And divide that by the market value of your dividend income portfolio.
Knowing Your dividend income portfolio’s yield will tell you how much you need to invest to make $500 in dividends every month. Let me show you.
Calculating The Investment Required To Make $500 A Month In Dividends
To calculate the amount of investment required, first take $500 a month times 12 months. That gives us $6,000 in annual dividend income.
Then take that $6,000 and divide it by your target dividend yield. 4%, in this example. Thus, $6,000 divided 4% which is .04 gives you $150,000.
Revisiting The Investment Required To Make $500 In Monthly Dividend Payments
Maybe saving and investing $150,000 seems out of reach? If so, you may revisit your target dividend yield.
To adjust the investment required, change your target dividend yield.
Let’s say, you decide to move your target dividend yield up to 6%. Because you have decided to invest in stocks with higher dividend yields.
With a 6% dividend yield, you only need to save and invest $100,000. That is $6,000 divided by 6%.
Just remember, higher dividend yields can signal higher investment risk. From a dividend income investor’s perspective, higher risk means a greater likelihood that a company may reduce or suspend its dividend in the future.
Dividend reductions are a big bump in the road to making $500 in monthly dividends. You should try to avoid a higher-risk dividend at all costs.
It’s now time for step 3 in our plan to make $500 in monthly dividends.
3. Select Dividend Stocks That Will Achieve Your $500 A Month In Dividends Goal
Now it’s time to pick your dividend stocks. There are many considerations when selecting dividend stocks for your dividend income portfolio.
But a few are more important when your goal is to make $500 in monthly dividend payments. Thus, here are several things you will want to pay close attention to.
For Monthly Dividend Payments, Choose The Right Dividend-Paying Companies
The past is not always a great indication of the future. But in the case of dividend-paying companies, history can tell us a lot.
Those companies with long-term track records of regular dividend payments to shareholders. A solid history of DIVIDED apprecition is also an important consideration.
There are 2 lists of dividend-paying companies are quite helpful in this regard. They are businesses that have paid and increased their dividends for at least 50 years in a row.
Second, are the Dividend Aristocrats. They represent companies trading in the S&P 500 stock index that have paid and increased their dividends for at least 25 consecutive years.
This touches on the topic of dividend growth. We will talk more about this topic a little later.
Pick Dividend Stocks That Meet Your Dividend Yield Profile
The dividend yield helped us understand how much investment is required to make $500 a month in dividends. Also, use your target dividend yield to choose the right dividend stocks.
Using the 4% target dividend yield as an example, look for companies that fulfill that target. Most companies will not have a dividend yield of exactly 4%.
So set a range. Let’s say between 3.75% and 4.25%.
For Monthly Dividends, Know Your Stocks Payment Pattern
You want to make $500 a month in dividends. Right? That’s why you are here and reading this.
Most U.S. dividend stocks pay out quarterly or 4 times per year. Furthermore, there are three common quarterly payment patterns that a company will likely follow. They are:
- January, April, July, October
- February, May, August, November
- March, June, September, December
When and how often a company pays dividends is part of its dividend policy. Every company has one. Even if they choose not to communicate it to the public.
You need at least 3 different stocks. One in each of the quarterly payment patterns.
If you have 6 stocks, select 2 from each payment pattern. 9 dividend stocks, then choose 3 from each payment pattern. I’m sure you get the idea by now.
And those dividend payments will be roughly equal each month. Recall, $500 in monthly dividends is the goal. This way, you get at least 1 dividend every month.
How Many Dividend Stocks Are Required To Make $500 In Monthly Dividends?
So, how many stocks are required for your dividend income portfolio? Unfortunately, there is no 1 right answer to this question when building a dividend portfolio for monthly income.