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How much do you need to make $1,000 in dividends per month?

I keep seeing people asking this question all the time. It is a bit surprising that people ask that question as it is very simple math to do. Well, it depends on your approach.

If you have a lump sum that you can invest immediately then the math is really simple. If you do not have time and you will be building your portfolio over time then it may be a bit tricky because you need to take into account dividend growth (while ignoring capital appreciation as it would complicate the numbers even more).

Lump-sum

So, let’s say, you have the lump sum available, or you want to know the lump sum needed to invest to achieve $1,000 a month immediately after you invest.

First, let’s assume, that you already selected dividend stocks you want to buy and know that your dividend income would be the same every month. Note that not all stocks pay the same dividend so you may need to buy a different amount of shares of every stock to achieve equal dividend payout every month.

Once you have that figured out, then the math is simple. To achieve $1,000 a month in dividend income, you need:

Dividends are rated annually (although most are paid quarterly the dividend rate and yield is quoted in annual terms. So, you have to annualize your income too. A $1,000 a month is $12,000 annual income.

Now, you need to figure out, what your portfolio yield is. Look at your stocks and calculate the average dividend yield of all of them. Let’s say, your dividend yield would be 3.5% annually.
 

Now, that you know your annual yield, you know that $12,000 annual income equals 3.5% of the total invested amount. Solving for the total amount is now easy:

$12,000 / 3.5 = 3,428.57 (you just got what 1% of the invested amount is).
 

Now, multiply by 100:

3,428.57 * 100 = $342,857.00
 

You need $342,857.00 invested right now to achieve an immediate $1,000 a month dividend income.
 

Let’s check our math and calculate our income reversing the math:

$342,857.00 * 0.035 = 12,000 / 12 = 1000
 

We multiplied our total lump sum by the portfolio dividend yield and got 12,000 annual dividend income. Divided by 12 months we arrived at 1,000 a month. Our math was correct then.

Conclusion: you will need $342,857.00 to invest right now for a portfolio with a 3.5% yield to achieve $1,000 a month.

Of course, if your yield is lower, you will need more, if your yield is higher, you will need less.
 

Next time we will look at the math in case you do not have the money and you will be building the portfolio over a certain time (you will need less money to achieve the same goal).





One response to “How much do you need to make $1,000 in dividends per month?”

  1. Thanks for the guide! That’s a very good step by step list for all beginners!

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