The whole point of investing money is to generate income, but how much money do you need to invest to make $500, $1,000, $2,000 or $10,000 a month?
If you invest in the S&P500 with a dividend yield of 1.58% (2/01/21) you need to invest $1,518,987.34 to average $2,000 a month in dividends. If your investments generate a 5% dividend yield you will need $480,000 invested to make $2,000 a month in dividends.
| Monthly Income | With a 3% Dividend Yield | With a 5% Dividend Yield | Invested in the S&P500 at 1.58% Yield
(2/01/21) |
Invested in the DJIA at 2.0% Yield (2/01/21) | 8% ROI with NO dividends (Capital Gains) |
| $500/M
(6000/Yr) |
$200,000 | $120,000 | $379,746.84 | $300,000 | $75,000 |
| $1000/M (12,000/Yr) | $400,000 | $240,000 | $759,493.67 | $600,000 | $150,000 |
| $2000/M (24,000/Yr) | $800,000 | $480,000 | $1,518,987.34 | $1,200,000 | $300,000 |
| $5000/M (60,000/Yr) | $2,000,000 | $1,200,000 | $3,797,468.35 | $3,000,000 | $750,000 |
| $10,000/M (120,000/Yr) | $4,000,000 | $2,400,000 | $7,594,936.71 | $6,000,000 | $1,500,000 |
Although the S&P500 is a great overall market investment the dividend yield isn’t very high. So in order to make a considerable amount of income every year you will need a lot more money invested. The S&P500 isn’t the only option to invest in to make thousands every month.
What are dividends and dividend yield?
With so many ways to invest money, understanding how you make money is important. Businesses regularly pay their owners and since you are buying a portion of a business when you purchase a share some companies will pay you dividends.
Dividends are a distribution of business profits paid to shareholders on a monthly, quarterly or yearly basis.
This makes investing for dividends a very important aspect of being a shareholder. When you invest enough, you can live entirely off the dividends and not have to touch your initial investment.
Generating enough income, especially during your retirement years is an important thing to plan for.
While not all businesses pay dividends to shareholders, the ones that do pay a specific amount per share. For example, Coca-Cola (NYSE:KO) is currently paying a quarterly dividend of $0.41 per share. ($1.64 per year)
This might not sound like a lot but when you keep buying more and more shares you end up making a lot of money every year.
With the current stock price at $48.77 and a dividend yield of 3.36%, you need to buy 14,646 shares of Coca-Cola, costing $714,285.14 to make $2,000 per month ($24,000 per year) in dividends.
Dividend Yield is a ratio of; Dividends paid to its current Share Price, shown as a percent. Calculated by dividing the Yearly dividend payout (in dollars) by the share price, then multiplying by 100.
For example, Coca-Cola has a dividend payout of $1.64 per year, with a share price of $48.77.
$48.77/$1.64= 0.0336
0.0336×100= 3.36% dividend yield
To simplify the relevance and make it easy to calculate approximate income, if you invest $100 in Coca-Cola with a dividend yield of 3.36%, you will receive $3.36 every year in dividends.
If Coca-Cola had a dividend yield of 4%, you would receive $4 per year with $100 invested.
While you will still make money based on the share price going up, (hopefully) the only way to access that money is by selling your shares.
Dividends Are Paid Every 3 Months (normally)
Using dividends as an income is a great passive income source that can get you through retirement without having to touch your initial investments.
The problem is that most companies pay dividends to their shareholders every 3 months. While this may not seem like a big problem, it can complicate your investments.
In order to generate $2,000 every month, you will need to spread your investments over at least 3 stocks with staggered dividend payment dates. Invest with an average dividend ratio of 3% and you will have to invest $266,667 into each stock (3) to generate $2,000 in dividends every month.
Since dividends are paid every three months, you need to have good quality stocks that will pay on a schedule like this;
| Stocks | Dividend payments |
| Stock 1 | January, April, July, October |
| Stock 2 | February, May, August, November |
| Stock 3 | March, June, Sept, December |
While Having the right investments is important, is you need to save a little bit to start investing a CIT Money Market Account or Savings Account is an amazing option that will give you an amazing interest rate until you are ready to invest!
Should you invest for Cash Flow or Capital Gains?
While a lot of investments rely on capital gains to make money not all do. Securities (stocks) can pay dividends and provide cash flow but not all companies pay a dividend.
If you own a business that doesn’t pay a dividend you need to liquidate some or all of your holdings in that business to access your cash. If your investments continue to increase in value this isn’t always a problem but over time you will have fewer and fewer shares.
If you own a business that does pay a dividend then you get a portion of the profits paid out to you. You get a percentage of the profits paid without touching your holding in the company. This means you get paid without having to sell shares in the business.
While selling your investments isn’t always a bad thing it can take away from your investment income and slowly lower your returns over time.
Capital gains
Imagine if you have $500,000 invested and it’s making $50,000 a year in Capital gains. If you want to access that money you need to sell a portion of your investment.
How to make 10% or more investing!
Even if every year your investments generate $50,000, over time your money will no longer be growing and inflation can start to erode your buying power.
What would happen if you needed more than your investments provide? Perhaps when you retire you only have $300,000 invest. Now you generate $30,000 a year in capital gains but still need to access $50,000 in cash every year.
You have three options:
- Erode your investments
- Lower expenses
- Generate income outside your investments
Cash Flow
When you invest in companies that pay a dividend you will be receiving money without having to sell any of your shares. This can be a powerful tool during your retirement years if you want to have a little extra cash flow for investing.
Imagine, you have $500,000 invested and your average dividend ratio is 3%. Every year you will receive $15,000 in dividends without selling any shares.
While $15,000 might not be enough to live all year, it provides a cash flow outside of just capital gains.
Where to Start Investing
Getting a head start on your investment is critical! You have a lot of options though!
Luckily, there are resources available to get you started! Have a look through some of the best investments around. You will learn about the businesses and what kinds of ROI (Return On Investment) you can make.
To get started without being overwhelmed by choosing stocks, ETF’s or other investments, a Robo-advisor Like Fundrise can offer you the best all-around value AND it’s SUPER EASY to start!