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When you invest in stocks, you are basically buying shares in a specific company. It is logical to say that you expect the company to be profitable so that later when you sell your shares, you will make a profit.
Some stocks offer the additional benefit of paying out dividends, which is a periodic payment that you receive each month, quarter, or year. Investing in stocks that pay out a dividend will help you to build out a portfolio where you make your money based on the dividends that you receive rather than just from holding the stock.
"Do you know the only thing that gives me pleasure? It's to see my dividends coming in." - John D. Rockefeller
It’s actually possible to build a portfolio that earns you $500 a month purely from dividends, which is a good passive income that can go straight to your savings or can help to cover additional living expenses.
After reading this guide, you will know how to make $500 from dividends, what stocks offer the best dividends, and how to calculate the yearly dividend yield and the investment amount required. To do all this we will be using these 5 steps:
Buying stocks that will become profitable in the future is what all traders are looking to accomplish. However, it is more advantageous if you invest in stocks that enable you to receive quarterly dividends.
A dividend is a sum of money that the company pays out to its shareholders. In most cases, dividends are paid out quarterly and are taken from profits that the company has made. While this is the norm, there might be instances when companies pay dividends monthly or semiannually.
Not all companies pay dividends to their shareholders, therefore, you need to find the right companies to invest in if you hope to receive monthly dividend payments.
The amount that is paid is represented in terms of the percentage of the stock price, this is called the “yield” and it is expressed in a yearly run. So if a yearly yield is 4%, to calculate the quarterly dividend payment that you receive, you need to divide the 4% by 4 quarters which is 1% per quarter.
The average dividend yield is between 2% and 4%. You can rarely find companies that pay dividends with a yearly yield of more than 5%.
Despite this percentage looking tiny, it works better for traders who invest a significant amount of money in order to hold many stocks. Holding a big amount of stock can earn you a steady stream of passive income from dividends alone.
Investing in stocks that pay you dividends seems like a good idea. You don't only own securities that you are hoping will grow in value, but you are receiving dividends every quarter.
Picking up the right stocks is important if you want to make a decent $500 each month from dividends. The following steps can help you achieve this passive income in an easy and comfortable manner.
"The market is often stupid, but you can't focus on that. Focus on the underlying value of dividends and earnings." - John C. Bogle
The first and most important step is to find the best companies to invest in. There are thousands of companies that you can choose from, but in this case, you have specific goals. You need to make sure the stock pays dividends, and then check the yearly yield of the stock’s dividends and the stock price.
It is important to inspect the yearly yield of the stocks that pay you dividends. You do not want a stock with a low yield percentage. Sure it could be a safe choice, but it will require a tremendously huge amount of upfront capital to make a decent income from those dividends. In addition, high yield rates might hold some risk factors, so you need to find the golden middle.
Then, you need to check the stock price. Usually, stocks with decent yearly yield rates are blue-chip stocks that are more costly to acquire. But take some time to shop around as there are some good companies out there that offer a moderate yield percentage at an affordable stock price.
The average yearly yield rate you might find is in the 2-5% range. Let’s say you want to invest in company ABC's stock which costs $1,000 per share and the company’s yearly dividend yield is 2%.
Say you purchased one share and paid $1,000 in total. To calculate the dividend receivable do the following calculations: $1000 x 0.02 = $20. Therefore, if you hold 1 stock of the company ABC, you can expect to receive $20 annually as a dividend, or a quarterly dividend of $5.
In order to buy a stock that pays you dividends, you need to register with a brokerage company. A broker helps you trade in stocks and gives you access to the stock market.
You need to be careful at this stage because there are thousands of brokerage firms to be found online. Some of them are legit, and the rest are fraudsters who will try to lure you to their website, where you will deposit your funds and get nothing in exchange.
Make sure that the broker is regulated by a licensing authority, and inspect the license to check if it is recognized and what the regulations are that dictate the firm’s business conduct.
Make sure the broker offers stock trading. There are different stock trading accounts that can be found on the broker’s platform. Some of them enable you to trade through the broker, while other account types give you direct access to the stock exchange market, where you can directly interact with the market to buy and sell stocks.
To better determine how much you need to invest to make $500 a month from dividends, you need to calculate the dividend's yearly yield that you need to aim for.
Usually, traders diversify their portfolios by investing in stocks of different companies. This way, if one company performs badly, and changes its yield or does not pay dividends for any reason, you have other sources that still pay you dividends.
Therefore, you need to calculate the weighted average yield of your portfolio, which is calculated by summing the yearly dividend income of each stock, divided by the total face value of the stock.
Let’s look at the following example. Consider that there are five companies (A-B-C-D-E) that have a face value and yearly dividend yield as per the following table:
|Stock||Face value||Yearly yield||Dividend income|
To find the weighted average for this portfolio, divide 111/3111 = 3.56%. This is the portfolio yield for the 5 stocks that you are going to invest in and based on this you can calculate the yearly dividend income that you will receive.
To calculate how much you have to put in stock to get dividends of $500 a month, you need to use the previously calculated weighted average yield.
You can directly calculate it using the target monthly amount of $500. First of all, multiply it by the yearly amount ($500 x 12 = $6,000). Now, to find out how much you need to invest in order to receive a $500 monthly income using a 3.56% yearly yield, divide 6000/0.0356 = $168,540.
In this case, you need to invest $168,540 in order to make $500 per month using a yearly yield of 3.56%.
It is important to consider that the amount of your investment relies on the weighted average yield. The higher the yield, the less amount is required to make $500 a month, and vice versa. To illustrate this let’s take a look at the following.
Making $500 a month results in a yearly income of $6,000. Now let’s test different yearly yields.
If the yearly yield is 2%; 6000/0.02 = $300,000
If the yearly yield is 3%; 6000/0.03 = $200,000
If the yearly yield is 4%; 6000/0.04 = $150,000
It is not enough to make your investment once and just sit and receive your income. If you want to invest to live off dividends, you need to grow your portfolio by reinvesting the dividend income.
This way, you not only increase your passive income from dividends but also secure yourself from sudden changes that might happen to one of the stocks you invested in.
If one company in your portfolio decides to increase its dividend payment, it would be a good idea to reinvest your annual income into that company, and eventually, you increase your passive income from the dividends you receive.
However, to better reinvest your income, you need to keep track of the market and financial news. It is important to keep watching the performance of the stocks in your portfolio, as well as other stocks that are available in the market.
By keeping your eyes on the market, you might find some other lucrative opportunities to invest, and add another company's stock to your portfolio.
In the following, we will discuss the top 5 stocks that we consider good picks for steady dividend payments.
The Coca-Cola company has been around for quite a long time. Its stocks have been publicly traded since 1919 and it has been growing steadily over the last few years. This can be a good indicator of a positive dividend investment.
The company offers a yearly yield of 2.8%, which is considered average, however, it might be considered a risk-free investment given its size and track record.
It could be a good idea to include Coca-Cola if you want to receive monthly dividends from stocks, as shareholders always receive dividends without interruption.
ABBV is a US biopharmaceutical company that was founded in 2013. It used to be a subsidiary of Abbott laboratories before splitting and forming a stand-alone company.
Its stock price has witnessed some noticeable growth over the last couple of years, and it achieved an all-time high in 2022 as it continues to grow.
It is considered quite a good investment to receive dividends from because of the generous yearly yield of 4.1%. Dividends are paid quarterly, and the company has never missed a payment since it went public in 2013.
Lamar Corporation is a popular advertising company in the US. It is behind many of the most famous banners that can be seen in the United States. It is well respected for its creativity in advertising and more importantly, for its growing stock price.
If you are looking to make a steady income from dividends then Lamar advertising company offers a very generous 5.59% yearly yield.
Since it started trading and paying dividends all the way back in 2014, the payments have come through to shareholders in an uninterrupted stream.
Its stock price is quite affordable despite the high yearly yield. It faced some decline at the beginning of 2020 due to the blowback of the Covid-19 pandemic, but the price has rapidly recovered and managed to exceed its pre-pandemic levels.
P&G is a pioneer company in consumer goods, producing cleaning products and detergents. The company’s stock has been publicly traded since 1982, and by the end of 2021, it managed to reach its all-time high of $164.
The stock price is quite affordable, and a good pick if you are looking to grow a passive income from dividends. Procter & Gamble offers an average yearly yield of 2.18%.
The company started paying quarterly dividends in 2013, and for the last 7 years, it never failed to pay its shareholders.
It is considered a safe investment due to the historical performance of the company in terms of earnings per share and stock price.
Texas Instruments is a US company and the main producer of calculators, processors, and audio-equipments around the world. The company was founded in 1951 and its stock has been traded publicly since 1982.
Its stock price has been growing noticeably over the last decade and has risen by over 30%.
Texas Instruments offer quite a good yearly yield of 2.61%, with an affordable stock price.
Texas Instruments is a good investment to add to your portfolio of dividend-yielding stocks. With an affordable stock price and a steady stream of dividends, it is a great pick.
The company’s shareholders have received dividends every quarter since the year 2000, and despite going through different economic crises, the company almost never missed a payment.
It depends on the yearly yield of the dividend and the stock price. An investor may invest in one company's stocks, or create a basket of different stocks from different companies. In both cases, a trader needs to invest a fairly significant amount in order to make a steady $500 per month income from dividends.
Yes, you need to invest significantly in stocks that pay dividends. You can combine several stocks, and based on the weighted average yield, you can get an investment that earns you $500 a month or more.
There are several stocks that pay dividends with a yearly yield of between 2% and 5%. These dividends are paid out either monthly, quarterly, or yearly, depending on the stock.
So to create a portfolio that pays you monthly, you will need to look at the dates on which different companies pay out dividends and manage your portfolio accordingly.
You need to hold the stock for two business days in order to be entitled to dividend payments. However, if you buy the stock at its previous price, and its ex-payment is due, the previous stock owner receives the payment.