Replace Your Income With Dividend Investing
If you’re like me and love the idea of passive income and retiring whenever you’d like, consider replacing your income with dividend investing. It’s low maintenance, relatively safe place to park your cash and does all the work for you! I’m going to teach you 1) How much you need invested to live off dividends, 2) How to grow a massive dividend portfolio with little to no money and 3) How you can speed up the process and retire well before the age of 50.
If you’d prefer to watch my video on how to live off dividends and retire young, here is the link.
Table of Contents
What is a Dividend?
“A dividend is the distribution of a portion of the company’s earnings, decided and managed by the company’s board of directors, and paid to a class of its shareholders. Common shareholders of dividend-paying companies are typically eligible as long as they own the stock by the ex-dividend date. Dividends may be paid out as cash or in the form of additional stock.” –Investopedia
High Risk and Low Risk Dividends
Dividend yields (how much you get paid per share) varies widely between different publicly traded stocks. Typically anywhere from 2% to upwards of 6.5%. And though the higher yielding dividends may seem appealing to someone looking to replace their income, they do come with their own risks.
One of the biggest risks of living off dividends, especially in retirement is the overall volatility. As you can imaging, it’s hard to budget when your income changes month to month. However, dividend paying stocks in the S&P 500 Index in comparison to non-dividend paying stocks has historically lower volatility over the last 47 years.
This becomes apparent when you look at the high standard deviations of Dividend Non-Payers and Cutters.
How Much Invested to Live Off Dividends? (Calculation)
Annual Income You Want / Dividend Yield = Amount You Need Invested
If you want a dividend income of $70,000 and your average dividend yield is 4%, you would need $1,750,000 invested.
Here’s a chart to help you visual the amount of shares needed to live off dividends in increments of $1,000 yearly income.
DRIP Method – How to Grow Dividend Portfolio
Now $1.7 million dollars is a lot of money and may seem unattainable in your lifetime. However with the DRIP method you can use the power of compounding to your advantage.
2 things must happen for this to work.
1) You must consistently invest a set amount of money EACH month into your dividends for years and years to come.
2) You must reinvest all the dividend payments you receive from owning these stocks.
By doing these two things you can make amazing things happen.
If you had initial investment of $5,000 and then continued to contribute $1,500 every single month for 25 years with the dividend return of 4% and an average growth rate of the stock and the average growth rate for the dividend.
In 25 years you would be worth $1.4 million. And at that point, Based off our calculations from earlier in the video, you would have an average annual income of $57,000, all completely passive dividend payments, and you could finally become financially free.
Living on Dividend Income in Retirement
It can feel overwhelming having to manage your assets as you you approach retirement. This is thanks to the change in strategy from growth to sustainability/income. There are a lot of decisions that need to be made that align with your financial situation, long-term goals and expectations for life during retirement.
This is why no ones asset allocation looks the same. Do remember you’re ultimate goal should be to meet a certain cash flow objective through multiple means such as dividend income, bond interest, asset sales, and more. It matters less what vehicles you use to meet your income goals but rather you fully understand the fees, and flexibility of each investment strategy.
“Quality dividend stocks can serve as a foundational component of current income and total return for a retirement portfolio. A properly constructed basket of dividend stocks can provide safe current income, income growth, and long-term capital appreciation to help investors stay the course and make a retirement portfolio last a lifetime. ” – Simply Safe Dividends
FAQs About Dividend Investing
Using the average dividend yield of 4% you would need to invest roughly $1.25 million to live off $50,000 passively through dividend payments.
Yes. Cashflow generated by dividends can very realistically cover many of your day to day expenses eventually resulting in completely living off dividend payments alone. The likelihood of this happening will depend heavily on your living expenses and amount invested.
To make $500 a month from dividends you’ll need to make at least $1,500 per quarter of the year. At a 4% dividend yield that equates to $150,000 invested in order to receive $500 a month dividend payments.
To make $3,000 a month you’ll have to invest roughly $900,000 into dividend paying stocks. This is using the average dividend yield of 4%.
Review historical data on dividend yields, payout and stock price for commonly traded funds.
Below is a detailed list of important dividend terms and dates to familiarize yourself with if you intend to invest in dividend paying stocks.
Declaration Date: This is the date a company says it will be paying its dividend. A declaration statement will include details of the following: amount paid in dividends, the record date and the date of payment.
Ex-Dividend Date: You must own the dividend paying stock before this date in order to receive the next scheduled dividend payment.
If you were to purchase the stock on or after the ex-dividend date the dividend payment still goes to the previous owner of the stock.
Payment Date: This is the predetermined date that the company will make dividend payments to shareholders on record.
Dividend Stock Glossary
Adjustable Rate: The rate in which an annual dividend can vary depending on certain factors.
Average Daily Volume: The average number of shares traded per day of a security in a given time frame.
Backwardation: When a commodity’s spot price is higher than the future price.
Balance Sheet: A financial statement of a company and it’s assets. Including both what it owns (assets) and what it owes (liabilities) as of a specific date. Usually reviewed on the last day of a company’s fiscal quarter.
The difference between the company’s assets and liabilities determines the net worth.
Basis Point: An interest rate measurement equal to one-hundredth of one percent. For instance, 50 basis points equals 0.5 percent and 100 basis points equal one percent.
CAGR: CAGR stands for compound annual growth rate and is the growth rate of an investment year over year.
Callable: The opportunity the issuer has to redeem a security prior to its maturity.
Call Date: The earliest date a preferred stock can be called.
Call Price: The price the issuer must pay to redeem a stock when called.
Capitalization Rate: Capitalization rate, otherwise known as cap rate is the property’s net operating income divided by it’s purchase price.
A higher cap rate generally means a higher return on investment.
Cumulative: A company issuing “cumulative” preferred shares must pay any skipped dividends on those shares before common stock dividends are paid and before the preferreds are redeemed.
Declaration Date: Date that dividend is announced.
Dividend Capture: This strategy involves buying a dividend paying stock at a precise time in order to capture the dividend payment, followed by the selling eh stock shortly after.
Video Transcript: Live off Dividends
If you want to be able to fire your boss, become financially independent and be able to do whatever you want. Whenever you want. It’s time. We start talking about dividend investing, a powerful, secret, wealthy people. Don’t want you to know.
And by the end of this video, you’ll know exactly how much money you need invested to live off dividends forever. And by the end of this video, you’ll not only learn all of the secrets to building a massive dividend portfolio and just living off the dividend payments alone. But I’m also wanting to give one of you watching right now, a jumpstart on their investing journey.
So I’m giving away $1,500 to one of you. I’m not seeing how you can enter at the end of the video. So stay tuned. So a dividend is when a company that you own stock in offers you a portion of their earnings. This, this exact amount that you’re given is decided by the company’s board of directors and is oftentimes paid to you quarterly, the set amount of oftentimes it’s a smaller percentage, anywhere between two upwards of six or 7%, maybe.
So, of course the more stocks you own INSEAD company, the larger payouts and more dividends that you can expect to receive. Now, similar to choosing stocks, there is a thought process that must be put into place in order to select your dividend in order to select the company, when, in which you would like to receive dividends from.
Because as you know, not all stocks are created equal here. Some have incredibly high yields, upwards of six and 7% butts can oftentimes have somewhat of a sketchy track record and have inherently more risk. Whereas on the other side of the spectrum, you’ve got maybe lower payouts around two and a half percent.
But 50 plus years of proven track record of increasing dividends and paying them out consistently. So before we talk about how much money you need invested in stocks to receive dividend income and of course live financially free, let’s first talk about the different risk levels involved with dividends and how you can choose the perfect ones for your portfolio.
In order to build a large enough amount of wealth to live off dividend payments alone. We have to be very strategic with where we’re investing our money. Not only do we need substantial enough growth that you can become financially free before you turn 80, but we need consistency and predictability here in which all of those come from choosing the right company to invest in key things to look for when it comes to choosing a company.
To invest in specifically for dividends is they need a long track record of not only consistent dividend payments, but also consistent increases to those dividend payments because you got to remember at any moment, a company could just completely cut their dividends. Now, the only way a company is going to be able to follow this rule is if they are a stable well-established and wildly profitable business.
Now, this is why I recommend selecting businesses that have dividend payouts anywhere between two and 4%. Now there are some fantastic companies that exist out there that offer more than, but in a section coming up soon in this video, we’re going to be starting with little cash and in order to accumulate enough money to live off dividends alone, there’s more to it than just what the dividend payout is.
We need stock growth as well. So now that you know, the difference between maybe an average yielding stock and a high yielding stock, and that it’s more important than just the number. And you really have to focus on the balance sheet in the business behind set stock. Let’s figure out how much money you need to have invested in order to live off dividends as a really easy formula.
I’m going to share with you right now. All you have to do to find this number is take the average annual income that your goal is. Let’s just say, $70,000 a year, and you go ahead and divide that by your average dividend yield. So in this example, if you wanted to make $70,000 a year, just from dividend payments alone, and you have an average dividend of three and a half percent, that would mean that you need one point $7 million invested.
Now, before you freak out. And you’re like, great. I have nowhere near that amount. I’m gonna be showing you exactly how you can grow to this insane amount of money as quickly as possible. Because remember the goal here is that you can live financially free off dividends alone before retirement, maybe even before 50 or 40.
So stay tuned. I’m going to show you how you can achieve this goal, because it seems like a big number now, but with the investing kits, I’m about to share with you. It’s going to become a hell of a lot easier. Now let’s say seventies a little much. You don’t need $70,000 a year. Let’s just try and do a calculation of if you’re an individual and you only want $50,000 a year to make $50,000 a year off dividend payments alone at a 3.5% dividend yield, you would only need 1.4 million invested.
You just shaved off 300,000 right there. Well, let’s say you were a little riskier. You still wanted 50,000, but instead of an average yield of 3.5, let’s say your average yield is somewhere around four and a half. Maybe even 5%. You would only need $1 million invested. That’s it. So, how do you end up accumulating a portfolio of $1 million?
Well, follow me. I’m going to show you well, now you’re probably thinking to yourself, grant, this sucks. It turns out that I need one point $3 million to finally live off just my dividend investments alone. How the heck am I going to come with that kind of money? And that is why I’m introducing to you. The drip method.
This is a strategy. That uses the power of compounding and just average annual growth on the stocks and dividends to build a massive dividend portfolio, otherwise known as the snowball effect. And this is how it works now in order to build a multimillion dollar dividend investment portfolio, a few things need to fall in line for this strip method to actually work.
The first one being is you need to have a set budget each and every single month to purchase more stocks. This should be the same number, if not increasing slightly, every single month consistently for years and years to come now, by doing this on a consistent basis, you are buying that company stock at different price points every single month on months where the price is exceptionally high, you’ll have.
Purchased less stocks. And in months where the price was lower, you’ll have bought even more stocks than said company. But by doing this consistently every single month, you are spreading yourself across a bunch of different price points. This naturally makes your investment a lot more safe. And by doing this every single month, your contributions alone.
We’ll be making your dividend payments higher each and every single time. But what else? There’s more that we can do here by reinvesting your dividends. Every single time you get paid, you can continue to buy more of that company stock. So not only are you getting more stocks from your monthly contributions, but also by reinvesting your dividends.
So what happens next? What happens when you combine these two things and continue to grow your portfolio? Well, take a look at these numbers. If you had initial investment of $5,000 and then continued to contribute $1,500 every single month for 20 years with the dividend return of 4% in an average growth rate of the stock and the average growth rate for the dividend.
In 20 years, you would be worth $860,000, but it gets even better if you just waited five more years in it and continue to do this for 25 years straight in total, you would be worth one point $4 million. And at that point, Based off our calculations from earlier in the video, you would have an average annual income of $57,000, all completely passive dividend payments, and you could finally become financially free.
And now this part is where it gets absolutely insane. If you continued to contribute $1,500 every single month for 40 years, four decades. You would be worth six point $4 million. Now, what does that equate to with annual income? What would the 4% dividend yield that equates to $256,000 every single year, just from your dividend payments alone.
And so with proper discipline and consistency and monthly contributions combined with dividend reinvestment. This whole drip strategy comes together. And now you have the proven formula behind building a massive dividend portfolio. I’ll leave the link below to the site I was using to come up with those numbers.
And that way you can figure out what works best for your budget and how you’re going to achieve your financial goals.
So to thank you guys for coming here and watching my videos, I want to help give one of you a jumpstart on your investing journey. So I’ve decided I’m going to be giving away $1,500 to one of you. Now that now there are three super simple steps that take less than 30 seconds. That’ll get you entered to win this money.
Because here in my channel, not only do I want to teach you guys on how to make more money on your own, but I also want to help just give you more money. So almost every dime that I make from YouTube, I give right back to you guys. So the more that you guys come here and watch share, like. The bigger and better these giveaways are going to get.
So listen closely. These are the three steps you need to follow in order to get entered. Step number one is to like the video. If you haven’t already, it helps up the channel immensely. Step number two is to subscribe. If you haven’t already intern on bell notifications, this lets, you know, whenever I upload videos, just like this one and I always announce my winners in the community tab on my channel.
So with the notifications turned on and you being subscribed you’ll know right away when I announced the winner and then finally. Step number three is just to comment down below anything that you’d like. Is there something interesting you learned in this video? Do you have tips you’d like to share with other people?
What are some stocks are currently looking forward to? What goal is, what’s your income goal for your dividends? Anything you want just come down below, do those three things like subscribe and comment, and you’re entered to win. I wish you guys the best of luck and I will see you. My next video.