4 Steps to Start Living Off Income From Dividend Stocks (2024)

Andrew Button

·4 min read

4 Steps to Start Living Off Income From Dividend Stocks (1)

Written by Andrew Button at The Motley Fool Canada

Do you want to live off of dividend income?

It’s a worthy goal, but it takes some time to achieve it.

It’s not enough to simply invest in dividend stocks. Unless you have a large amount of savings, you’ll need to invest progressively over time until you finally have a dividend stock portfolio that you can live off of.

In this article, I will share a four-step process that can ramp up your dividend income to the point that you can live off dividends.

Step #1: Save money

The first step in dividend investing — or any kind of investing — is to save money. How much money you’ll need to live off of dividend income depends on your expenses. If you have, say, $35,000 in annual living costs, you’ll need to get at least that much in dividends (less any CPP or other pension income) per year to live off passive income.

If you invest your money into a TSX index fund, you’ll need to invest over $1 million to get to $35,000 per year in dividend income. That might sound like a lot, but as I’ll show in an upcoming section, you can get to $35,000 per year in dividend income with a lot less than a million invested by investing in high-yield stocks.

Step #2: Open a brokerage account

Once you’ve got some money saved up, your next step on your journey to passive dividend income is to open a brokerage account. Head down to your bank or use an online service like WealthSimple and request a brokerage account. If you go with your bank, they’ll have you sign some forms. If you use an online service, you do not even need to book an appointment; you just visit the service’s website, sign up there, and then download the app.

Step #3: Invest in high-quality dividend stocks

Once you’ve got some money saved, it’s time to start investing. Here, you have many opportunities available to you. There are Guaranteed Investment Certificates (GICs), which, these days, yield as much as 5.5%. There are index funds, which provide diversification that reduces your risk. Finally, there are individual stocks, which sometimes offer very high yields.

Consider Toronto-Dominion Bank (TSX:TD), for example. It’s a $78.71 stock with a $0.96 quarterly payout. That’s $3.84 in dividends per year, which, when divided by the $78.71 stock price, gives us a 4.8% dividend yield. At a 4.8% yield, you only need to invest $718,000 to get to $35,000 in annual passive income rather than a million.

TD Bank stock has a high yield, but amazingly, its dividend is fairly safe. TD Bank has a 48% payout ratio, meaning that its profit could fall by 50%, and it would still be able to keep paying its dividend. Fortunately, investors probably don’t need to worry about TD’s profit falling 50%. U.S. banks recently released their third-quarter earnings and delivered high, positive growth. TD’s earnings will likely be similar to those of U.S. banks, as it earns 40% of its profit in the United States.

Step #4: Repeat steps 1-3

Once you’ve begun buying dividend stocks, the only step left is to repeat steps one to three until you’re left with a dividend portfolio that can pay all your expenses. It may take a few decades to get there, but get there, you will!

The post 4 Steps to Start Living Off Income From Dividend Stocks appeared first on The Motley Fool Canada.

Should You Invest $1,000 In TD Bank?

Before you consider TD Bank, 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 October 2023... and TD Bank 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 25 percentage points. And right now, they think there are 5 stocks that are better buys.

See the 5 Stocks * Returns as of 10/10/23

More reading

Fool contributor Andrew Button has positions in Toronto-Dominion Bank. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

2023

4 Steps to Start Living Off Income From Dividend Stocks (2024)

FAQs

4 Steps to Start Living Off Income From Dividend Stocks? ›

Reinvest Your Payments

The truth is that most investors won't have the money to generate $1,000 per month in dividends; not at first, anyway. Even if you find a market-beating series of investments that average 3% annual yield, you would still need $400,000 in up-front capital to hit your targets.

How do I start living off dividends? ›

4 Steps to Start Living Off Income From Dividend Stocks
  1. Step #1: Save money. The first step in dividend investing — or any kind of investing — is to save money. ...
  2. Step #2: Open a brokerage account. ...
  3. Step #3: Invest in high-quality dividend stocks. ...
  4. Step #4: Repeat steps 1-3. ...
  5. Should You Invest $1,000 In TD Bank?
Oct 28, 2023

How much money do I need to invest to make $1 000 a month in dividends? ›

Reinvest Your Payments

The truth is that most investors won't have the money to generate $1,000 per month in dividends; not at first, anyway. Even if you find a market-beating series of investments that average 3% annual yield, you would still need $400,000 in up-front capital to hit your targets.

How much money do you need to make $50000 a year off dividends? ›

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. By then, there could be other dividend-focused ETFs to choose from.

How much dividends does $1 million dollars make? ›

Stocks in the S&P 500 index currently yield about 1.5% on aggregate. That means, if you have $1 million invested in a mutual fund or exchange-traded fund that tracks the index, you could expect annual dividend income of about $15,000.

Can you realistically live off dividends? ›

It is possible to achieve financial freedom by living off dividends forever. That isn't to say it's easy, but it's possible. Those starting from nothing admittedly have a hard road to retirement-enabling passive income.

When can you start living off dividends? ›

If it means to pay for 'all' expenses, then no for the 'average' person. For the wealthy it is possible. so at $3025/mo you would need * 12 months = $36,300 of yearly dividends to cover your living. so with investment of $1,210,000 and an average of 3% in dividend payments this is possible.

How much dividends to make $500 a month? ›

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.

How to make 3k a month in dividends? ›

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.

How much do I need to invest to get 500 a month in dividends? ›

To generate $500 a month in passive income you may need to invest between $83,333 and $250,000, depending on the asset and investment type you select. In addition to yield, you'll want to consider safety, liquidity and convenience when selecting the investments you'll employ to provide monthly passive income.

How much do I need to invest to make $200 a month in dividends? ›

The first high-octane income stock capable of generating $200 in monthly income from a beginning investment of $27,000 that's split in thirds is retail real estate investment trust (REIT) Realty Income (O 1.46%).

How to make 5k a month in dividends? ›

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. $1 million invested would generate about $27,000 per year or $2,250 per month.

How much do I need to invest to make 400 a month in dividends? ›

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.

Do millionaires invest in dividend stocks? ›

The latest round of 13Fs, which features trading activity for the December-ended quarter, detailed a handful of moves made by successful billionaire investors in ultra-high-yield dividend stocks. I'm talking about publicly traded companies whose yield is at least four times higher than the benchmark S&P 500.

Can you become a millionaire from dividend stocks? ›

Can an investor really get rich from dividends? The short answer is “yes”. With a high savings rate, robust investment returns, and a long enough time horizon, this will lead to surprising wealth in the long run. For many investors who are just starting out, this may seem like an unrealistic pipe dream.

How much money do I need to invest to make $4 000 a month in dividends? ›

But even at 9.5%, we're talking about a middle-class income of $4,000 per month on an investment of just a touch over $500K. Below, I'll reveal how to start building a portfolio that could get you an even bigger income stream than this today.

How much money do you need to just live off dividends? ›

How Much Money You Need to Retire on Dividends. As a rough rule of thumb, you can multiply the annual dividend income you wish to generate by 22 and by 28 to establish a reasonable range for how much you need to invest to live off dividends.

How to make $500 a month in dividends? ›

Dividend-paying Stocks

Shares of public companies that split profits with shareholders by paying cash dividends yield between 2% and 6% a year. With that in mind, putting $250,000 into low-yielding dividend stocks or $83,333 into high-yielding shares will get your $500 a month.

How much money do I need to invest to make $3000 a month in dividends? ›

If you were to invest in a company offering a 4% annual dividend yield, you would need to invest about $900,000 to generate a monthly income of $3000. While this might seem like a hefty sum, remember that this investment isn't just generating income—it's also likely to appreciate over time.

Top Articles
Latest Posts
Recommended Articles
Article information

Author: Annamae Dooley

Last Updated:

Views: 6540

Rating: 4.4 / 5 (65 voted)

Reviews: 88% of readers found this page helpful

Author information

Name: Annamae Dooley

Birthday: 2001-07-26

Address: 9687 Tambra Meadow, Bradleyhaven, TN 53219

Phone: +9316045904039

Job: Future Coordinator

Hobby: Archery, Couponing, Poi, Kite flying, Knitting, Rappelling, Baseball

Introduction: My name is Annamae Dooley, I am a witty, quaint, lovely, clever, rich, sparkling, powerful person who loves writing and wants to share my knowledge and understanding with you.