How much do you need to invest to live off dividends?

3 min read

How to live off dividends

This year wasn’t easy for many. I hope you didn’t sell anything and I encourage you again to hold your stocks for the long term. You will be surprised and thankful to yourself in 10 years that you were invested in the stock market this year.

“The best time to plant a tree was 20 years ago, the second best is today!”

Alright, let’s begin.

You will need a lot of money to live off the dividends and somehow you can retire or do whatever you want with your time. How much is it? This is a little bit complex question.

Let’s say that you need $1000 for your monthly expenses. That is $12,000 per year. We will use this round number as an example so that you can easily scale up to your needs.

I cannot discuss right now which company you should invest in because it would be a much longer article so you would have to make the research on your own or to check my other articles (How to pick top stocks for dividends?).

The dividend yield is important to discuss in the first place. Live off is like a retirement plan so you will need to have mostly stocks or ETFs (what are ETFs in investment?) which have a higher dividend yield, not much or decent growth in dividends, and not so volatile stock prices. An Apple stock can be but is not suggested in a retirement portfolio because it pays out currently only a 0.51% dividend yield. This isn’t good to live off the dividends because you will need a lot of money to get to the 1000$ monthly.

On the other side don’t go only for the big dividend yields. You can easily make this mistake if you don’t pay attention. If you are targeting only the companies which are paying the biggest yields then you will lose money! If you see a stock that offers a yield above 10% then better run…It is mostly a trap and the yield will be cut soon and the stock price will be very volatile. Not a good idea to invest in it.

The best what you can do is a healthy mix. A growth potential like in SBUX which pays only a 2% dividend but it will grow 15-20% year to year and an EPD which pays an 8% distribution yield but the price won’t grow that much, and the dividend only by a small percent. You have to have also companies from the middle with a 3-4% yield and decent potential for growth.

Let’s be here a little bit pessimist and say that after taxes the whole portfolio has to have a payout ratio of 3.5%. And I will present as an example the worst-case scenario of taxation which is 30%. But here are some examples from European Countries:

Belgium – 30%

Bulgaria – 5%

Cyprus – 17%

Germany – 25%

France – 12.8%

Hungary – 15%

As you can see, very different it can be wherever you live.  You can find here more data about what is tax rate on dividends.

On the research sites, you will see the gross dividend yield so before tax, you will need a 5% average yield from your portfolio. From here we can calculate that the 12000$ net dividend is with the 30% tax = $17,142

For this amount and the 5% gross yield, you will have to invest $342,840!

What to do next?

Let’s say you have the money but you aren’t an expert talk to an expert about how to invest this much money. Not to a guy who sells life insurance and so an…a real somebody who is an expert about dividend investment or if you have time then take your time and follow experts on youtube if you find somebody who has real knowledge than support him/her on Patreon or websites like Patreon and there you will find surely also tips in which you „have” to invest and so an.

I rather trust a guy like Chuck Carnevale who is a founder of FAST Graphs than a bank that offers me a retirement plan with a specific yield and they say it will manage my portfolio. In most cases, the fees will eat up your profits.

Anyway, after the years your income will be greater and more significant than the 1000$ monthly. Why? Because of the dividend growth. Some company will increase their dividend by just 1% by year but other companies maybe by 15-20% by year. After all your portfolio will give you a „Pay rise” every year which won’t be directly connected to the share price but after all, you will earn more money!

This is nice and everything but what if you don’t have the money yet for it but you also don’t have 30 years to retire?

Well, the more time you have the less amount you have to begin with and if you have less time but you want to begin with a larger amount or put into the portfolio every month a larger amount it may be enough. And don’t forget about dividend re-investment, since it works similarly to compounding interest (annually compounding interest calculator).

But this picture can tell a lot more than I do by writing.

End words

It is good to have a goal and see the light at the end of the tunnel but more important to just BEGIN! Begin to invest as soon as you can so you will generate wealth for yourself and your family. You are lucky if you have the money to live off 800$ of dividends monthly but if you don’t, don’t be sad you will get there I’m sure!

Happy, happy new year I wish you to have the amount that you can invest into your portfolio monthly. 2023 won’t be the year where you can post everywhere on social media how much profit you make but rather where you have to have the discipline to invest over and over again and trust the process!   

ARTInvest Financial Freedom Enthusiast. Part-time investor and content writer. Want to share my experience and knowledge with you. My website: https://www.art-invest.net

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