Can you make $1,000 a month without working? Yes, it is called passive income! Furthermore, you could make $1,000 a month in dividends alone! That means $12,000 per year. Here’s how!
This is not a get rich quick scheme. This is dividend growth investing!
Great things to take time to build and DGI investing is no different. But with patience and consistency it is very possible to earn $1,000 per month in dividend income.
I am in my 9th year of actively investing in dividend growth stocks. I have built a six-figure portfolio that generates over $14,800 in dividend income per year.
That is over $1,200 per month in cash coming into my wallet while I sleep!
This wasn’t built in a day; it took some time. Unless you have a large lump sum of money to invest right away, it will potentially take years to earn $1,000 a month in dividends.
But make no mistake, those years would definitely be worth it!
How much money do you need to invest?
How much money would you need to invest to earn $1,000 a month in dividends? Well, it depends on your stock purchases, but let us look at some general amounts and dividend yields.
Example #1: $100,000
A portfolio valued at $100,000 would have to yield 12% to earn you $1,000 per month in dividends. While not impossible, you would likely have to invest in many REITs and plenty of high yielding energy and specialty finance stocks.
This would be highly risky and would likely not be sustainable for the long-term. You would also be limited in your diversity of stock sectors.
Example #2: $200,000
A portfolio valued at $200,000 would have to yield 6% to earn you $1,000 per month in dividends.
This is more reasonable then the first one. You can at least entertain a diversity of stocks from different sectors. However, you will likely be heavy in certain sectors such as REIT’s, energy, Tele-com, MLP’s, and/or some financial stocks.
The S&P 500 has historically yielded between 2-5% over the decades. Over the years and into today dividend yields have gone down from where they stood decades ago. So, let’s look at a 3% yield.
Example #3: $400,000
A portfolio valued at $400,000, that yields 3%, would earn you $1,000 per month in dividends.
You could easily build a very healthy and diversified stock portfolio that would earn you a 3% dividend yield.
How much to make $1,000 a month in dividends?
Realistically, you don’t necessarily need $400K to earn $12,000 a year (hence $1,000 a month) in dividends.
My portfolio has been floating around $300K at the time of this post and is yielding a bit over 4.2% (amounting to $12,595 in yearly dividend income).
While there is no strict range, in the present market, at minimum you will likely need to invest $300K to $400K to earn $1,000 in dividends a month in a healthily diversified portfolio. It could be more or could be less.
Where do you get $300,000 to $400,000 to invest?
It could be harder or much easier to accomplish then you think.
How do you complete a 10-mile hike? One step at a time. How do you eat an elephant? One bite at a time.
How do you build a house? One brick at a time.
The same is true with dividend growth investing. Those small amounts add up big over time!
Steps to Making $1,000 a Month in Dividends
So, let’s say you are in it for the long haul and want to earn $1,000 per month in dividend income.
Chances are you are not wealthy enough to do it overnight, so you will likely be working a job and have to build it up over time. (That is how I did it).
So, here are 3 steps to follow to make $1,000 in dividends per month.
1. Maximize Your Savings Each Month
Investing tends to be very difficult if you have no money to invest. Living pay check to paycheck is how the vast majority of people get by. It is a never-ending rat race.
To break the cycle and start earning passive income you need to learn how to save money. Ideally, you should build a lifestyle that allows you to save the maximum amount of income each month. One of the benefits of minimalist living is high savings rate.
For myself, I built I minimalist lifestyle that allows me to save over half my month pay. Thus, I have an over 50% savings rate. The money that gets saved goes into investments in dividend stocks. Thereby providing me with increasing dividend income.
Learn to keep your expenses low.
1) Start with the biggest expense: housing.
The average American family spends over $21,000 per year on housing (as of 2020). Even worse is the fact that rents are rising.
I’m not saying you should live in a tent or in a bad neighborhood.
However, if there is a smaller place in a decent neighborhood it may be very cost effective to move there as opposed to a larger more glamorous place in a more expensive neighborhood, even if you can afford it.
Downsizing or buy smaller from the start can save you thousands of dollars (or more) per year. (Check out my minimalist studio apartment)
2) Next big expense is transportation.
If you can walk, bike, or take public transportation to work, do it instead of driving. Ideally, walk or bike. If you can get rid of having to own a vehicle, even better.
Cars are expensive to own. According to AAA, the average cost of owning a car is nearly $10,000 per year. That’s money that you could be investing.
3) The last big expense is food.
The average American spends about $412 per month on groceries. That comes to nearly $5,000 per year. For a family of 4, those costs can easily add up to over $1,000 per month.
The average American (just one person), spends over $3,500 each year just dining out (equal to about $300 each month).
This is definitely a spot were you need to trim the fat (literally as well).
Don’t starve yourself, but don’t eat out every day either. Cooking at home and brown bagging a sandwich can save you hundreds or thousands of dollars per year.
Eliminate most, if not all of your debt.
Debt is an expense you should be striving to pay off as soon as possible.
The average American household had an average of $6,125 in credit card debt in 2021 (nearly $800 billion in total US credit card debt in 2021).
That doesn’t mean you should wait to be debt free to start investing. However, too much debt is like walking around with weights tied around your neck and ankles.
If you have a mortgage, that can probably wait to be paid off. But strive to eliminate any credit card debt, car loans, student loans, etc., as quickly as you can. The less anchors holding you down the better.
That is all money you could be saving and investing in dividend growth stocks.
2. Build a Diversified Portfolio of Dividend Stocks
Now here is the fun part (saving money can be fun too).
You’ll want to start buying stocks that pay dividends and build a portfolio. There is also the option of buying Dividend Index Funds with or as an alternative to picking individual stocks.
As always, you should diversify your stocks across many sectors.
How many stocks should you own?
There is no definite answer. Everyone has a different number. The general rule seems to be 20-30 as a standard number for diversification. (As you can see from my portfolio, I own more than 50 stocks)
What metrics should you look for when selecting dividend stocks to purchases?
This is where things can get complicated, especially for beginners. All the numbers seem overwhelming at first (as they were for me). I find that simple tends to be better.
There are 4 basic metrics that I look at:
1) Dividend Payout Ratio!
Preferably a payout ratio of less than 60%. Below 60% shows a company has room to grow its dividend over the years. There are exceptions like REIT stocks which are require to pay out 90% of their earnings.
2) P/E Ratio (price-to-earnings)!
Basically, this can tell you if a stock is undervalued or overvalued. While I tend to make exceptions to this preference, stocks with a P/E ratio of less than 20 is a good general preference.
3) Dividend Yield!
I prefer to purchase stocks that yield over 3%. Again, I will make exceptions to this preference at times of the stock is quality.
4) Dividend Growth History!
How many years has a company paid out an increasing dividend? 5 years? 10 years? 20 years? Increasing dividends often signal strong performance for companies.
Aristocrats, Kings, and More!
In addition, be sure to check out a group of stocks known as Dividend Aristocrats. These are dividend stocks that have raised their dividend payments each year for 25 years and more.
And if you like that, check out a list of Dividend Kings. These are dividend stocks that have raised their dividend payments each year for 50 years and more!
If you are interested in learning more about dividends and personal finance, especially a beginner, I created a page called “Getting Started”.
I list some resources there to help you get a basic start to dividends and personal finance. These are resources that helped me get started many years ago.
3. Stay Persistent and Let Dividend Growth Work its Magic
This last step may be the most challenging at first, but will get easier as it becomes routine. Have patience and stay persistent in achieving your goal of $1,000 per month in dividends!
Invest routinely and regularly. Save, invest, repeat!
Don’t let the noise and fear mongering around you get to you! The stock market has shown itself to be an excellent vehicle for growing wealth over the last century. (Since 1926, the average annual stock market return has been a little bit over 10%)
There will certainly be ups and downs, highs and lows, and bull and bear markets. The point is to invest straight though those in high quality stocks. I’ve invested consistently through all kinds of markets. Even recessions are opportunities to pick up great stocks at discounted prices.
The journey itself is fun. You watch your dividend income grow each year and you surpass one milestone after another.
1) Those Dividend Increases!
Best of all, there are dividend increases which increase your dividend income without you even making stock purchases.
For example, over the last 8 years I’ve been investing, companies increasing their dividend each year alone added over $1,700 in dividend income to my portfolio.
At a 3% yield, that would be the equivalent of me having to invest $57,500 in additional cash. But I didn’t have too. Dividend increases alone added increased my dividend income!
2) Reinvest Your Dividends!
Finally, reinvest all the dividends you receive and buy more dividend growth stocks!
For example, I received over $70,000 in dividends over 8 years of investing. I put all those dividends right back into buying more dividend stocks. At a 4% yield, that is over $2,800 in added dividend income just from reinvestment!
Again, there is the magic formula: save, invest, repeat!
Let compound interest do its work and watch the snowball grow!
Conclusion
Yes, you can make $1,000 a month in dividends! As to how long it would take, that depends on a variety of factors in your personal life and lifestyle.
A great many people would love to earn $1,000 a money in cash without putting in any labor. No sitting in a cubicle for hours, no rush-hour traffic, and no stress. The money comes in while you sleep. But many struggle with putting the time in to build in dividend generating machine.
The earlier you start investing the better. I wish I had started earlier in life. But no matter where you are, if you follow the steps above and stay the course you will emerge better off then you were before!
Soon you will be making $1,000 a month in dividends!
So, what do you think of this post? Are you ready to become a dividend growth investor? Are you already earning dividends each month? If so, how much are you averaging per month?
Let me know in the comments below!
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