Learn how to make $1000 a month in dividends by setting up a dividend portfolio aligned to the 12 months of the year.
Earning money while you sleep allows you to increase your income with limited extra effort. Passive income is limited in effort to a degree. You need to put in some initial work to get things going, but not to the level of your day job. An extra income stream can either help you achieve your financial goals quicker, or set larger goals.
$1000 a month in dividends is an awesome goal, and if you’re starting from scratch it may take you some time to get there.
So in the short term, if you don’t need the money to pay bills, you can let the earnings compound towards $1,000 in monthly dividends while you also continue to buy additional shares.
5 steps to create a dividend portfolio to earn $1000 a month in dividends include:
- Open a brokerage account for your dividend portfolio, if you don’t have one already
- Determine how much you can save and invest each month
- Set up direct deposit to your dividend portfolio account
- Choose stocks that fit your dividend strategy
- Buy shares of dividend stocks
Building a monthly dividend portfolio doesn’t happen overnight, especially if you’re starting from scratch. With a solid plan, you’ll get there over time, dividend by dividend. Here’s a deeper look at the steps and strategies to help you get started.
Let’s look at how you could choose the right stocks to pay you $1000 in monthly income or any amount you need.
One quick note I should mention. I’m not a licensed financial planner or financial advisor. The content on this website should be considered for information purposes and should not be considered investment advice. Always do your own research before making financial decisions. Or check with your favorite financial professional for additional information on what’s best to do for your situation.
What is a monthly dividend portfolio?
A monthly dividend portfolio of carefully selected stocks, mutual funds, and other predictable investments that pay dividends. When curating your investments you’ll want to look at when they pay dividends so that you’ll receive them each month of the year.
There are different opinions on if this is a good investment strategy. Some people prefer different investing approaches. Ultimately you’ll need to decide if creating a monthly dividend portfolio fits with your financial goals and risk tolerance.
When selecting stocks and investments you need to remember that no dividend is 100% guaranteed to pay based on its past history, typically there’s a higher probability of the payment pattern to continue in the future.
5 steps to make $1000 a month in dividends with a stock portfolio
Here is a 5 step plan to help you get started on your journey to creating a monthly dividend portfolio. Unless you happen to have a large amount of cash ready and waiting to be invested, this will take you some time to build. And that’s ok.
1) Open a brokerage account for your dividend portfolio, if you don’t have one already
If you don’t already have a brokerage account, the first step will be to open one. Check out the trade commission fees and minimum requirements the brokerage company requires. In 2019 many of the large brokerage companies reduced their trade commissions to $0 per trade.
The shift to $0 commissions per trade is good news for you because that allows you to build your dividend portfolio with smaller purchases without fees eating into your plan.
Also, make sure to confirm any account balance minimums as some companies charge a fee for having an account if the balance is below a certain number. As in 2019 many companies reduced their balance minimums to $0, but always double-check this too.
When you open your account and start your strategy, you’ll need to decide if you’re opening a regular brokerage account or a tax-deferred retirement account. Consider having a conversation with your favorite tax professional to understand what makes the most sense for your specific situation.
And finally, you’ll want to confirm how to direct deposit money into your new account as well as how to set up a transfer from your regular checking account. Central to building an investment portfolio of any size is consistently adding to it. Automation makes it easier to reach your goals by taking a step out of the process. And if you don’t have a direct deposit option through your employer, being able to transfer money from your checking account is an alternative.
If you have cash ready to add to your portfolio, start the transfer to your new account as soon as it’s open. Next, take a look at your budget to figure out how much you can invest each month.
2) Determine how much you can save and invest each month
In order to make $1000 a month in dividends, you’ll need to invest approximately $400,000 in dividend stocks. The exact amount will depend on the dividend yields of the stocks you buy for your portfolio.
Take a closer look at your budget and decide how much money you can set aside each month to grow your portfolio. Given the sizable amount of money, you’ll need to reach your $1000 a month dividend goal, adding regularly to your portfolio will help.
The amount of money you can invest each month will partially determine how long it will take you to reach your goal.
If your budget is currently tight, set aside what you can. Start with even a small amount so that it’s something.
Next, take a closer look at your budget for opportunities to reduce your expenses so you can use that money to invest instead.
Consider setting a smaller, short-term dividend goal so you will see progress towards your larger goal. Maybe reaching $50 or $100 a month in dividends is a goal you can reach this year. It’s a great stepping stone in the years to come to building a larger monthly dividend portfolio.
3) Set up direct deposit to your dividend portfolio account
Get the direct deposit information for your brokerage account so that you can update your paycheck instructions. Hopefully, your employer allows you to split your paycheck a few different ways because you still need to receive money into your regular checking account. Make sure you pay your bills in addition to investing in future income!
If you’ve run out of paycheck instructions or your brokerage company doesn’t have clear direct deposit instructions, you should be able to set up free account transfer instructions within your brokerage account. Put a reminder on your calendar for each payday to manually transfer the money you want to invest. Typically there’s always a backup plan if the original option isn’t available.
4) Choose stocks that fit your dividend strategy
Stock selection is a relatively personal decision and requires research into each company you decide to invest in. When it comes to creating a dividend portfolio, a few important factors you’ll want to consider for each company include:
- The company’s health
- How long they’ve been paying a dividend along with their payment increase history
- How well their earnings are covering their dividend payments
- The company’s industry
The company’s health and earnings will help you understand how safe future dividend payments likely are. Researching the company and reading commentary is important to making decisions about which stocks to buy.
The dividend history and payment increase trends give you an idea of when the company will likely payout in the future. Stocks with increasing dividends also help you snowball your way to your dividend goals.
And finally knowing the industries of the companies you decide to invest in allows you to create a balanced and diverse portfolio. Managing risk involves not putting all your eggs in one basket. Diversifying the companies you buy stock in along with the industries represented in your portfolio help spread the risk of your future dividend earnings.
The other aspect you need to look at is when the company pays its dividends. If you’re looking to earn dividends monthly, you might want to focus on companies that if certain payout schedules. That’s not to say a historical payout schedule should 100% guide you to buy a stock or skip one. It just adds to your decision process.
Create a watchlist of the companies you think you’ll want to invest in so that when you have the cash available you can start buying shares to grow your dividend income.
5) Buy shares of dividend stocks
And finally to reach your monthly dividend goal, start buying shares of stock in the companies you want to focus on. With the direct deposit from each paycheck, you’ll have cash ready and waiting when it’s time to make a purchase.
When you buy shares, double-check your watchlist to see which stock is the best value for the moment. It’s not so much about “timing the market”, which typically doesn’t work out in your favor, but making sure you’re being efficient with your purchases.
Fortunately, as most large brokerage companies have reduced their trade commissions to $0, you’re able to buy stock in smaller numbers of shares without fees eating into your investment value.
Checking your watchlist helps you avoid research overwhelm and decision fatigue. If you’re buying shares in bluechip stocks, then it’s about looking at the calendar to see if you’ll qualify for the next dividend payment, or potentially if the price is down you might be able to buy additional shares for your money.
How much money do you need to invest to make $1000 a month in dividends?
To make $1000 a month in dividends you need a dividend stock portfolio of approximately $342,857 and $480,000, with an average portfolio of $400,000. The exact amount of money you will need to invest to create a $1000 per month dividend income depends on the dividend yield of the stocks and the time you have to reach your goal.
What is dividend yield?
It’s the return on investment in terms of the dividends you receive for the money you invested. The dividend yield is calculated by dividing the annual dividend paid per share by the current share price. For the money you invest, you receive Y% in dividends back.
Before you start thinking of trying to find higher yields to make this process faster, the usual recommendation for “regular” stocks are yields in the range of 2.5% to 3.5%.
Of course, this benchmark was prior to the 2020 global situation, so the range may flex while the markets continue to swing. And it also assumes you’re ready to start investing in the market while it’s moving a lot.
For this example, let’s keep the conversation simple by targeting a 3% dividend yield and focusing on quarterly stock payments.
Most stocks that pay dividends do that 4 times a year. To cover all 12 months of the year, you’ll need a minimum of 3 different stocks.
If each payment is $1000, you’ll need to invest in enough shares to earn $4,000 per year from each company.
To estimate how you’ll need to invest per stock, divide $4,000 by 3%, which results in a holding value of $133,333. And then multiply that by 3 for a total portfolio value of around $400,000. Not a small amount of money, especially if you’re starting from scratch.
Before you start looking for higher dividend yield stocks as a shortcut…
You may be thinking that you can shortcut the process, and reduce your investment by looking for higher dividend yield stocks. In theory that could be true, but stocks with dividend yields above 3.5% are generally considered risky.
Under “normal” marketing conditions, higher dividend yields generally reflect there may be a problem with the company. Driving down the share price raises the dividend yield.
Take a look at the stock commentary on a site such as SeekingAlpha. to see if the dividend at risk for a cut. While everyone has their own opinion, make sure you’re an informed investor before deciding you’re willing to take the risk.
If the dividend is cut, the stock price generally goes down further. So then you’re out both dividend income and portfolio value. That’s not to say that happens 100% of the time so it’s your call on the risks you’re will to take.
How many dividend stocks do you need to receive payments each month?
You can build your portfolio with as little as 1 monthly dividend stock, or 3 quarterly dividend stocks to receive 12 payments per year. $1000 a month, or $12,000 a year in dividends requires a large investment portfolio overall. And if you limit your investments to only 3 stocks, it equates to a value of almost $133,333 per individual stock that has a dividend yield of 3%.
To manage the risk, you’ll likely invest in more than 3 stocks across different companies and industries. Unless you have a large amount of cash ready to invest, over time you can decide which stocks to continue to purchase shares in, or you may also decide to start purchasing a new company.
How to choose your stocks to align your dividend earnings to each calendar month
Quarterly dividend payments are the structure you’ll find with most dividend stocks. Some will pay monthly, once a year, twice a year, or even less scheduled.
Focusing on the quarterly payments for this example, you need to buy at least 3 different stocks that follow specific payment patterns to create a monthly dividend portfolio.
Before this starts to sound impossible, there are 3 common dividend payment patterns that many stocks follow. Not all stocks follow these patterns exactly but it will give you a place to start.
The three dividend payment patterns align to the month in the quarter:
- First month: January, April, July, October
- Second month: February, May, August, November
- Third month: March, June, September, December
If you buy one stock for each pattern, your investment portfolio will likely pay you dividends each month of the year.
Of course, this is where the footnote needs to be starred to remind you that nothing is 100% guaranteed. Sometimes payments will shift between months, especially if the company usually pays out at the very beginning or end of the month. Or for some reason, the company decides to change its payment schedule. That does happen from time to time.
And make sure to do your research before investing in a company. Just because the stock fits or doesn’t fit the payment pattern exactly, it doesn’t mean you it’s a stock to buy or skip.
7 tips for choosing stocks for your dividend income portfolio
When you’re ready to start building your dividend income portfolio, here are seven things I learned from my own journey.
Start smaller when starting from scratch
In order to earn $1000 per month in dividends, you’ll need a portfolio of approximately $400,000. Today that may sound like an impossibly huge number, especially if you’re not converting an existing IRA.
Instead, start building at smaller incremental dividend goals such as $100 a month. Continue to invest and reinvest over time to reach your larger goal.
Now that the large brokerage companies cut trading commissions to $0, it’s easier and more efficient to make smaller share purchases more often.
Invest in different stocks
Aside from the simple reality that in order to cover all months of the year with “regular” stocks you’ll need to invest in different companies, $400,000 is a large amount of money. Diversifying the companies you purchase stock in spreads the risk.
3 stocks are putting a lot of eggs in a few baskets. If one of those stocks goes bad, a huge percentage of your portfolio would be impacted.
And investing in different stocks allows you to cover different industries and buy something at a better value at the time.
Maybe divide it up so that no stock accounts for more than $200 or $250 of a single month’s dividend income.
Look for stocks with consistent dividend payment histories
The only guarantee when it comes to the stock market is that it will go up and down. And the only guaranteed dividend is one that’s actually paid out.
But, starting with stocks with long dividend payment histories generally have a better chance of continuing to pay in the future.
The long-term payers usually want to continue their payments in the future, because their share price will likely go down if they stop.
Company or market conditions could result in a dividend schedule change. Or the dividend strategy might change because of a merger or acquisition.
Double-check the stock’s next ex-dividend date
Before you purchase your shares check to see if you’ll qualify to receive the next dividend payment.
The ex-dividend date means the stock is trading excluding dividends. You need to own the shares before that date to be eligible to receive the future dividend payment.
Do a quick check for the next ex-dividend and payment dates.
Even if you don’t qualify for the next dividend payment, you may still want to purchase the shares anyway. But depending on what’s on your watchlist, a different stock may be a better purchase for the moment.
Check what taxes you may owe on your income
If you’re building a dividend income portfolio in a regular brokerage account, not a tax-deferred retirement account, you’ll likely owe additional income taxes and paperwork each year.
If your goal is $1000 per month in dividend income, you may a larger investment to cover the taxes.
Give your favorite tax professional or the IRS to confirm your specific situation.
Don’t chase dividend yield rates
It’s worth saying one more time. High dividend yield rates in regular stocks could indicate a problem with the company that’s pushing down the stock price. Double-check your company research. Losing both your dividend income and stock value will be counterproductive to your goal.
Depending on what your research says, you may still want to take the risk on a particular stock. Just go in as an informed investor with your eyes wide open.
REITs (or real estate investment trusts) are a different type of stock investment that is taxed differently so the dividend rates are typically higher than the “regular” stocks.
Reduce the risk by splitting your monthly payments among multiple stocks
Compared to the smaller monthly dividend goals, $1000 per month in dividends requires a large investment in individual stocks.
And it’s worth saying one more time, future results aren’t guaranteed based on past performance. It’s always possible for dividend payments to end, even with the longest paying companies.
To reduce your risk of one stock having trouble, consider purchasing more stocks with the same payout patterns. Maybe it’s 2 stocks that pay $250 per month for the same pattern.
A simple dividend planner made in Google Sheets can help you structure and track your dividend earnings.
When it comes to investing in the stock market you will do the best you can with the information available at the time. If needed, you course correct in the future.
Are you planning to invest for $1000 a month in dividends?
Earning $1000 a month in dividends as passive income is a great way to supplement your income, or grow your portfolio on autopilot until you need to spend the money.
Intentional stock selection can allow you to receive a dividend payment each month. Make sure to do your research first to ensure it’s a good fit for your portfolio and not just the calendar.
Remember to spread the risk with stocks in different industries. Splitting up your $1000 monthly goal across multiple stocks ensures you don’t have all of your eggs in one or two baskets.
Start where you can and grow your portfolio over time. Don’t get discouraged if you’re not able to create a $1000 in monthly dividend income from day one.
Over to you, what are your additional tips or strategies for creating a dividend income portfolio?
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