Receiving extra passive income each month while you sleep allows you to double-dip your time to earn more money. You need to put in some initial work to get things going, and potentially less effort than you put in as part of your day job. So passive income is generally not without any upfront extra effort or investment. With enough time, patience, and strategic thinking, you achieve your financial goals sooner. And you may even be able to set larger goals than you expected. Dare to dream bigger!
$2000 a month in dividends is a huge goal, and if you’re just starting it will probably take you some time to get there. Remember patience is part of the equation. You’ll need a plan.
If you’re able to, let the investment portfolio earnings compound while you continue your path towards $2,000 in monthly dividends. You’ll be able to reach your goals if you both invest and reinvest at the same time.
Let’s look at how you can plan your investment portfolio to pay you $2000 in monthly income or any amount you need.
One quick note I want to mention. I’m not a licensed investment advisor, so none of the information on this website should be individual investment. This site is for informational and entertainment purposes only. Always do your own research before investing in any stocks or other securities. And if you have questions about your own circumstances, check with your favorite licensed professional for additional assistance.
How much money you need to invest to make $2000 a month in dividends
Ultimately the amount of money you need to invest to make $2000 a month in dividends depends on the dividend yield of the stocks in your portfolio.
Dividend yield is the return on investment you received in terms of dividends based on the money you invested. Calculate the dividend yield by dividing the stock’s annual dividend paid per share by the current share price. You receive X% in dividends for the $Y money you invest.
Before you start searching for higher yield stocks to reach your dividend goal faster, the rule of thumb for “regular” stocks is to stick to yields in the 2.5% to 3.5% range.
To some degree, the benchmark might be a little fuzzy in 2020 given the current global situation and market gyrations. You also need to be willing to jump into a stock market while it’s moving a lot as you may feel a little seasick along the way.
To keep this conversation and example simple, let’s stick a middle-of-the-road 3% dividend yield. Let’s also assume for the purposes of this example you’re creating a portfolio using stocks that pay dividends quarterly. Four dividend payments a year is the most common out of the options.
To receive 12 dividend payments a year, one each month, you need to buy a minimum of 3 different stocks.
If each dividend payment is $2000, you actually need to buy enough shares to earn $8,000 per year from each company. Keeping to the original example, divide $8,000 by 3%, which results in a stock value of $266,667. Next, multiply $266,667 by 3 to represent the approximate total portfolio value.
Based on all of the math, you need to invest approximately $800,000 at a dividend yield of 3% in at least 3 different stocks to make $2000 a month in dividends.
Not a small amount of money, especially if you’re starting from scratch. With planning and patience, you will get there.
Warning: a higher dividend yield isn’t always a shortcut to your goal…
Your mind may have wandered to finding higher dividend yield stocks to get to your $2,000 goal faster. Hang on for a second. In theory, this could work, but the rule of thumb is dividend yields above 3.5% are considered risky.
Under “normal” conditions, higher dividend yields may indicate a problem with the company. Something about the company is driving down the share price, and raising the dividend yield.
Check out the commentary around the company either by searching the news or sites such as SeekingAlpha. You’re looking to see if there’s chatter about fundamental issues with the company that could result in a dividend cut.
If the company cuts the dividend, the stock price will likely also go down. The potential risk in front of you is both decreased dividend income and decreased portfolio value.
No one has a perfect crystal ball so nothing is certain. You need to decide for yourself what risks you’re willing to take with your money. Be an informed investor before moving forward with a purchase. Everyone will have their own opinion. Seek out the facts as best as you can.
How to align your stock choices to the calendar
Companies decide their payment schedules and if you dig around the histories enough, you’ll notice that quarterly is the most common. Other companies may pay monthly, twice a year, or once a year. You may also find a stock that pays on a less scheduled basis.
Keeping with the example for this discussion, with quarterly dividends, you need to buy at least 3 different stocks to align to all 12 months of the year.
And this is not as difficult as it sounds. The good news is many stocks follow one of the 3 common dividend payment patterns. While 100% of the quarterly stocks don’t follow the patterns, you have a place to start.
The easiest way to think about the three dividend patterns is to realize the alignment to the month of 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 per payout pattern, your dividend portfolio will likely pay you each month of the year. Likely is called out because no dividend is 100% guaranteed until it’s paid.
For payments that usually happen at the very beginning or end of a month, it might shift over to the other month. Or maybe for one reason or another, the company might change its payout schedule.
And it’s ok to buy stocks that don’t 100% fit the payout schedule you need. Do your research and don’t skip a stock just because
always keep in mind that just because a stock fits the payment schedule you need, or maybe if it doesn’t, that doesn’t mean
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 it’s a stock to buy or skip.
6 things to keep in mind when you’re building your dividend income portfolio
If you’re ready to get started building your own, dividend income portfolio, here are seven things to keep in mind.
Break your goal into smaller pieces
Unless you happen to have $800,000 in cash ready to go, break your $2000 a month goal into smaller pieces. Maybe you need to build a plan around $100 a month in dividends and level up all the way to the $2000 monthly goal.
Buying stock in smaller amounts is now easier with the major brokerage companies cutting trading commissions to $0. Set aside money each month to chip away at your goal, piece by piece.
And reinvesting dividends along the way will help you make progress from two angles.
Spread the risk with multiple stocks
In order to receive dividends each month of the year using quarterly paying stocks, you’ll need to choose at least 3 different companies. Don’t forget $800,000 is a large amount of money. And only having 3 stocks puts a lot of eggs in almost one basket.
Instead of having few stocks making up a large percentage of your portfolio value and dividend income, diversity the companies you invest in. Also, look at investing across different industries.
As you create your plan to $2000, consider breaking it up so that maybe each stock contributes $200, $250, or even $500 of each month’s total payment.
Check the dividend payment histories of the stocks
Spend a little time looking at the history of the stock market. It goes up and it goes down. That’s probably the only thing you can 100% count on.
In theory stocks with long dividend payment histories have a better chance of continuing the trend in the future. Those companies usually aim to continue the streak or face steep stock price reductions.
Of course, market conditions or something happening with the company such as a merger could change their dividend schedule. Always keep an eye on the signals coming out of the companies that you both buy stocks in as well as on your watchlist to help you make better portfolio decisions.
Track the ex-dividend dates of stocks on your watchlist
The “ex” in ex-dividend date means “trading excluding dividend”. If you buy shares on or after that date, you don’t qualify for the next dividend payment. You need to own the shares before the ex-dividend date.
That’s not to say you shouldn’t still buy the shares if that’s the right stock to buy at the moment. This is more of a mention to you may not receive your passive income as soon as you expected.
Double check if you owe taxes on your income
Depending on the type of account you use to build your dividend income portfolio, you may owe additional income taxes each year. Check with your favorite tax professional if you have questions.
For example, if you open a regular brokerage account, you may owe taxes compared to opening a tax-deferred retirement account. It’s also going to depend on what you want to start using the dividend income such that one account may make more sense than the other.
The other thing to keep in mind with taxable accounts, if you want to walk away with $2000 a month in income to spend, you will likely need to invest more money to help cover the taxes.
Give your favorite tax professional or the IRS to confirm your specific situation.
Beware chasing high dividend yield rates
As mentioned earlier and saying again, chasing high dividend yield rates might have the opposite effect of what you’re trying to achieve. Under normal market conditions, regular stocks with high dividend yields could indicate an issue with the company. Something might be pushing down the stock price and increasing the dividend yield.
If the company ultimately cuts the dividend, you lose both some or all of your dividend income in addition to reducing your portfolio value. Overall it’s counterproductive for your goal.
Do the research and make your purchases as an informed investor. No outcome, either positive or negative, is 100% guaranteed.
Note: REITs (or real estate investment trusts) are a different type of investment category that has a higher dividend yield rate because it’s taxed differently. You’ll likely see these taxed as “ordinary dividends” rather than “qualified”. A higher dividend rate doesn’t 100% mean a higher net income at the end of the day.
Are you ready to start planning a $2000 a month in dividends portfolio?
Building a dividend income portfolio is just one way to create passive income each month to supplement your income on autopilot.
Intentional stock selection can allow you to receive $2000 in dividend payments each month. Always start with research to ensure the stock is a good fit for your portfolio. Don’t buy a stock just because it pays in the right months.
Consider spreading the risk by buying different stocks across different industries. Avoid putting all of your eggs in one basket or two. And unless you have $800,000 handy right now, you’ll need to grow your portfolio over time. Break your larger goal down into smaller monthly goal increments so you can continuously make progress.
What additional questions do you have about planning your dividend income portfolio strategy?