“If you don’t find a way to make money while you sleep, you will work until you die,” Warren Buffett once quipped. Famous for his buy-and-hold stock investment strategy, he is an authority when it comes to a discussion about passive income.
The man bought his first stock at the age of 11, has amassed a fortune in his lifetime, and has been a billionaire for over three decades now. Check out Berkshire Hathaway’s portfolio to understand why Mr. Buffett is regarded as the most successful investor in modern history.
Today, we’ll discuss how you can make $3,000 a month by creating a portfolio of dividend-paying stocks.
Supplement Your Income with Dividend Investing
Putting money in winning dividend-paying stocks guarantees you fairly predictable payouts that will supplement your regular income and gradually lead you to financial freedom.
Build a portfolio of quality stock with a positive earning history and watch your investment work for you. You don’t need to have a million dollars to get started and earn $3,000 per month in dividends. Even with a small investment of $5,000, you’d be surprised what compound interest can do if you diligently reinvest your earnings.
In 15 to 20 years, your portfolio could be worth well over a million and turn over thousands in monthly dividends. Regardless of how much money you have for investing, get started on the mission to replace your income with dividend investing.
The Significance of $3,000 Per Month
Why would you need a portfolio that generates $3,000 per month, and not $2,000, $5,000, or any other random number? Well, $3,000 per month is not just an arbitrary amount—it is the minimum amount you need to live ‘comfortably’ in Canada. That means having enough of an income to spend, invest, or save after paying taxes and paying for personal necessities, such as food, shelter, and clothing.
Based on the general quality of life and standards of living, Canada ranks among the best places in the world to live. This impressive ranking comes with a hefty cost of living, which can vary across regions. A single person living in Toronto needs about $3,551 to live. You’d need $3,445, $2,822, and $2,384 to live in Vancouver, Ottawa, and Montreal, respectively.
What is a Dividend?
One of the several perks of owning a company’s stock is getting paid dividends. Dividends refer to the distribution of some of the company’s profits to shareholders. They can be issued in cash payments, stocks, or other forms as a company’s board of directors approve.
Not every company pays dividends. As such, if you’re interested in investing in dividend-paying stocks, you should look for companies with a history of rewarding loyal shareholders. These include companies in basic mineral, oil, gas, finance, healthcare, pharmaceutical, technology, and utility industries, among others.
Because startups often need to reinvest their profits, they may not have enough left over to distribute to their shareholders. Companies only pay dividends when they make profits. In many cases, a company doesn’t pay dividends when they have a shortage of funds or need to reinvest their profits.
How Much Money Can You Make from Dividends?
You can only earn dividends proportional to the value of the stock you hold. For example, if you own stock worth $900,000, based on a dividend yield of 5%, you’ll earn $45,000 annually.
There are several things you can do to increase your dividend earnings. The obvious one is investing in stocks that pay higher dividends. Logically, if you invest in 1,000 stocks that pay a dividend yield of 5% and another batch paying 2%, you’ll earn more dividends from the first batch of stocks as compared to the second.
What is A Dividend Yield?
Expressed as a percentage, a dividend yield is the amount of money a company pays out to its shareholders relative to the current market value per share.
A dividend yield is calculated by dividing the approved dividend per share by the stock’s current market value and multiplying it by a hundred to get the percentage. If the board of directors of a company with a stock price of $250 approves a dividend of $25, the dividend yield for that stock would be 10%.
Investors earn more money from high dividend yield stocks as compared to low dividend yield stocks. However, high dividend yield stocks are more volatile and can tank just as easily as they can increase.
How Much Should You Invest to Make $3,000 A Month in Dividends?
Eager to understand the magic number you need to invest in order to comfortably earn $3,000 per month in dividends? Unfortunately, there is no specific number since the yield depends on the value of stocks you’ll invest in and the dividend yield for each stock.
Even so, the best strategy to consistently earn $3,000 a month is investing in established companies with a track record of making regular dividend payouts. Seasoned investors mitigate the volatility of the stock market by selecting companies with histories that vouch for them.
First, you must set a dividend yield target. You should pick companies with dividend yields of between three and five percent as a rule of thumb. Between three and five percent is a realistic target because less than three percent doesn’t provide a significant return and above five percent is too risky to achieve. What you need is consistency, and volatile stocks won’t give you that.
Alright, your goal here is to take home $3,000 a month in dividends. Now, work backward to establish how much money you’ll need to put in to get your dividends. As mentioned above, the higher the targeted dividend, the higher the investment amount.
List companies that pay dividend yields between three and five percent. Then, determine the investment required for the stocks you just listed. Select the stocks in which you’re looking to invest on your list, and the amount of investment required is the figure you’ve been looking for.
Let’s throw in some actual figures to illustrate this. Working with an annual dividend yield of 4%, you’ll need an investment of $900,000 to make $36,000 annually, which translates to $3,000 monthly. Say you get lucky and find stocks that pay an annual dividend yield of 5%. You’ll only need to invest $720,000 to take home $36,000 every year, which is still $3,000 monthly.
High-Risk and Low-Risk Dividends
Dividend investing comes with varying degrees of risks depending on the dividend yield you are looking to earn. Dividend yields vary widely between different companies depending on the industry, history of operation, risk involved, and overall performance, among other factors.
While high dividend yields might seem attractive, they come with a risk of higher volatility. Volatility refers to the number of times an amount or a number can change within a given period. Regarding stock investments, volatility refers to drastic changes in the stock market.
High-risk investments may prove viable for investors who don’t mind an adrenaline rush every time they view their portfolio. With higher risk comes higher rewards. This option is suitable for investors who can afford to lose some of their investments to stock market dynamics.
Investors that prefer predictability are better off with low-risk portfolios that yield little dividends consistently. Despite the low dividend payout, these stock investment options guarantee you payments every cycle.
Conclusion and Recommendations
Dividend investing is a great way to supplement your income. Building a winning portfolio that will earn you $3,000 monthly in dividends takes money, strategy, and patience. Don’t be discouraged if you cannot make money immediately or if you cannot raise the required investment to earn you $3,000. Start with whatever initial investment you have, plow everything into your portfolio, and let the power of compound interest do its thing. Remember, “The best time to plant a tree was 20 years ago. The second best time is now.” Act now; it’s never too late to invest and earn some passive income.