How to make $500 a month in dividends is a burning question these days. You often find traders talking about how to earn $500 a month in dividends. This ought to be a burning question. After all, who would not love to have $500 in his/her pocket at the end of each month?
However, this isn’t a simple case of earning passive income. We are talking about making $500 a month in dividends. There are numerous factors you need to consider and numerous aspects you need to look at. Furthermore, there are various key concepts you need to learn about. And of course, steps you need to follow to make $500 a month in dividends.
Given the importance as well as the complexities of the topic at hand, we decided to help you. We are going to explore how to make $500 a month in dividends in this detailed article. You will learn the steps required for realizing your goals. Additionally, you will also learn about all you need to know to make the overall process easy for you. So, don’t look anywhere else and keep reading.
“This article is not financial advice and is just for educational purposes. Do your own research and ask for professional advice.”
Dividends – the best source of passive income
Passive income refers to an income stream that keeps flowing your way even when you sleep. It entails little effort on your part and that’s why almost everyone runs after it. However, it isn’t possible to earn without effort, at least a little effort. It is true as you have to do something upfront to establish a source of your income. But what about next? Can you just sit idle and wait for the passive income stream to keep flowing?
No, this isn’t possible. You have to keep your passive income sources updated. Maintaining these resources is important for a steady passive income. For instance, you invest in real estate to establish rentals as a passive income source. However, you cannot just sit and keep earning rentals each month. If you don’t keep your property in good condition, it becomes less appealing to renters. So you see, you have to do something for passive income even after the completion of the initial legwork.
However, dividends are a source of passive income that doesn’t require any effort, of course after a careful selection of dividend stocks for investment. You can easily develop a portfolio of stocks that offer a steady passive income for upcoming years. However, it is important to note that you need to invest a big amount of money up front to earn the desired level of dividends. As soon as you are done with your portfolio, you won’t have to move a finger to keep dividends coming.
How to make $500 a month in dividends
Do you want to know how to make $500 a month in dividends? If you want to know, you are right. An extra $500 each month is an enticing passive income stream. It can put you on the path to achieving your long-term financial goals. Here are the 5 key steps you need to follow to make $500 a month in dividends.
1. Open a brokerage account
As you know, trading and investing are only possible through brokerage accounts. You also need to open a brokerage account to start investing in dividend stocks. However, it isn’t as easy as it initially seems. There are multiple factors that you need to consider before choosing a broker. For example, analyze the minimum requirements of a broker to see whether you are eligible to open an account. You also need to make sure whether the platform of your chosen broker suits you or not. Furthermore, you also need to consider factors like regulatory compliance, fees, commissions, minimum deposit requirements, and so on.
Trading fees and commissions are the most important factor to consider here. High trading fees and commissions significantly affect your gains. Although most brokers have introduced $0 commission trading, still it is important to consider. Your chosen broker may not be offering commission-free trading. You should choose a broker that offers commission-free free trading because you would not want fees and commissions to eat your gains.
Secondly, it is also of paramount importance to check minimum balance requirements. Some brokers charge heavy fees for not maintaining minimum balance requirements. When you open a brokerage account, you also have two types of accounts to choose from. You have to choose between a regular trading account and a tax-deferred retirement account. It is better to discuss with a professional to decide which type suits you in this situation.
Finally, it is also important to assess different options for depositing capital into your brokerage account. You need to see whether you can deposit directly into your trading account or not. Some brokers also offer the transfer of funds from a regular bank account. It is important because you may have to face embarrassment after opening the account but not being able to fund your account.
As soon as you get your brokerage account ready, start transferring capital into your account. It is imperative, however, to invest money you don’t need for a while and you can meet your expenses without it. Moreover, maintaining your investment portfolio is also integral to making $500 a month in dividends. You need to invest more constantly to maintain your portfolio. Therefore, it is also important to analyze how much you can afford to invest each month.
2. Determine the amount you need to invest each month
As we have already discussed, you need to invest big sums of money to make $500 a month in dividends. Although the exact amount may differ from one portfolio to another, it roughly falls in the range between $130,000 to $200,000. That is quite a huge figure for an average person. That said, you will have to invest some amount each month to achieve your desired dividend income goals.
Moreover, how much you invest upfront and how much you deposit each month decide how long it will take to reach your goals. The key here is to minimize your necessary expenses and avoid unnecessary expenses. That is how you can save money for investment. You can create a budget for yourself to keep tabs on your income and expenses.
3. Initiate direct depositing to your brokerage account
As you know, adding to your dividend portfolio account each month is a prerequisite to achieving your goals. You can simplify the process by opting for automation. However, if automation isn’t possible, you can manually deposit in your brokerage account. Now, what you have to do is acquire all the direct deposit information from your broker. Once you have the information you can update your paycheck instructions. It is possible that your employer may agree to divide your paycheck into two ways. So, you will keep getting your paycheck into your regular account as well as adding to your portfolio.
However, if there are no clear direct deposit instructions or your employer doesn’t approve a paycheck split, you need to do it manually. In this case, you have to be very careful about depositing money into your portfolio. For instance, you can set reminders and manually deposit to your brokerage account on each payday.
4. Choose dividend stocks for investment
This is the most important step and the most difficult one of all five steps to make $500 a month in dividends. Choosing dividend stocks takes a lot of research and effort. Developing a viable portfolio that will yield $500 a month in dividends is a demanding task. There are several factors that you need to consider.
- Company’s financial health and dividend payout history – A company’s financial health and dividend payout history are key aspects to consider when choosing stocks for investment. In fact, these are also the factors that determine the safety of your investment and dividend income. Stable financial health and dividend payout history give you an idea about the company. For example, a company is better for investing if it has a history of paying dividends on a regular basis for years. Additionally, if it is also paying higher dividends each year, it is a more solid company. Conversely, if a company isn’t paying dividends on a regular basis, it isn’t a suitable option.
- Company’s industry – It is also important to know about the industry of your chosen company. This is a key factor as you won’t prefer to put all eggs in one basket. Instead, choose different baskets to keep your eggs safe. That said, invest in companies operating in different industries. It serves you in two different ways. Firstly, it diversifies your portfolio. Secondly, it keeps dividend income steady as a few industries would perform better in some economic conditions and a few wouldn’t. Therefore, the overall effect of the ever-changing economic conditions remains the same.
Finally, it is time to start buying the dividend stocks of the companies you chose in the previous step. After direct deposit from each of your paychecks, you will have capital ready to buy stocks. However, it isn’t a straightforward process. You have to be super careful when buying stocks. You cannot reach your monthly dividend goal if you aren’t careful enough.
Therefore, it is imperative to double-check stocks on your watchlist to analyze their performance. Being efficient in buying stocks is more important than so-called timing the market. The latter doesn’t always work in your favor. However, being efficient is the key to achieving your monthly dividend goals.
How much capital is required to make $500 a month in dividends?
You know how to make $500 a month in dividends. There are five steps that can help you achieve your monthly dividend goals. Now, the next important question is how much capital you need to make $500 a month in dividends. So, let’s find an answer to this important question as well. It is important to note, however, that there is no exact amount. The exact amount will vary from investor to investor. Generally, the needed amount to make $500 a month in dividends remains within the range between $100,000 and $300,000. However, it may also be higher or lower in some cases.
Why does the amount vary? It varies because it is the weighted average dividend yield for the stocks investors hold in their portfolios. So, the next question is how to calculate the weighted average dividend yield for your portfolio.
How to calculate the weighted average dividend yield for your portfolio?
Fortunately, it is very simple to calculate the weighted average dividend yield for your portfolio. You need to know two things;
- Value of each stock in your portfolio
- Current dividend yield of each stock
Once you have the information, follow the following steps to calculate the weighted average dividend yield for your portfolio.
- Multiply the value of each dividend stock in your portfolio and the current dividend yield of each stock to calculate the annual dividend income of each stock.
- Calculate the sum of the annual dividend income of all stocks in your portfolio.
- Divide the sum of the annual dividend income of all stocks in your portfolio by the total value of dividend stocks in your portfolio.
Thus, you can easily calculate the weighted average dividend yield for your portfolio. Let’s try to understand all steps by using an example.
|Stock||Value ($)||Yield (%)||Annual Div Income ($)|
So, we have a $5,281 total value of stock and a $223 total dividend income. We can calculate the weighted average dividend yield by dividend $223 by $5,281 which gives us 4.2%. Now, you can go on to calculate the capital you need to make $500 a month in dividends. Here are the steps you need to follow.
- Get the annual dividend amount by multiplying $500 by 12 which gives us a $6,000 annual dividend income.
- Divide $6,000 by the annual dividend yield calculated in the previous calculation which is 4.2%.
So, how much money do you need to invest to make $500 a month in dividends if the weighted average dividend yield for your portfolio is 4.2%? It is $142,860 (6000/4.2%) approximately.
Yes, you are right if you are thinking that it is the weighted average dividend yield of your portfolio that determines how much money you need to invest to make $500 a month in dividends. As a general rule, high dividend yields require less money to make $500 per month in dividends. That’s why you might be thinking about investing in stocks that offer higher dividend yields. However, it is too early to conclude because there is another key factor known as risk.
Yes, dividend stocks offering higher dividend yields come with high risks. This is because companies may reduce dividends in the future as high dividends aren’t sustainable for the long term. Additionally, reduced dividends also cause a decline in stock prices. So, there are two main reasons you shouldn’t invest in high dividend-yield stocks. Firstly, you will fail to meet your monthly dividend goals when dividends are reduced. Secondly, the overall value of your portfolio will also reduce when stock prices fall.
Tips to make $500 a month in dividends
Investing for dividend monthly income is a journey. It isn’t a destination. Therefore, it is important to stay vigilant during your journey. Here are a few tips you can follow to make your journey easy.
1. Choose high-quality dividend stocks
As you know, there are thousands of companies offering dividend stocks. However, you cannot afford to invest randomly or according to your perception. You have to be efficient to achieve your goals. The most important aspect here is to choose high-quality dividend stocks. How can you do this? You can do this by looking at the history and track record of a company. The best option is to choose stocks from the blue-chip stocks. They are companies that offer dividend growth stocks. In short, they have a history of paying out dividends consistently.
2. Focus on the dividend yield of each stock in your portfolio
As we have discussed earlier, each stock in your portfolio affects the weighted average dividend yield. And weighted average dividend yield determines how much money you need to make $500 a month in dividends. Therefore, it is integral to focus on the dividend yield of each stock in your portfolio. You should invest in stocks that offer reasonable dividends and aren’t risky. In simple words, always remember that stocks offering dividend yield above 3.5% are generally considered riskier.
3. Keep investing in your portfolio
As we mentioned earlier, investing in dividend stocks for monthly income is a journey. Most of us don’t have the money upfront to make $500 a month in dividends. Therefore, it is important to keep investing in your portfolio to achieve your monthly dividend goals. You can analyze your budget and see how much you can afford to invest each month. Furthermore, you can also reinvest dividend income each month to achieve your monthly dividend goals.
4. Don’t over-expose your capital to one stock
Investing is a risky arena no matter how carefully you play in this arena. Even the best companies may suffer losses and can even go bankrupt. Therefore, it is important never to put all eggs in one basket. That means diversification is the key. You should not over-expose yourself to one stock. Instead, invest in multiple stocks and also keep watching stocks in your portfolio. Diversification is the key not to let any one of the companies affect your portfolio. Furthermore, you can also invest in companies operating in different industries. It also reduces risk.
5. Account for any potential income tax
You are liable to pay income tax when you open a regular brokerage account for your portfolio. You may consult a professional for more information. If you are liable for tax payments, you may aim for a slightly higher dividend yield to cover tax payments.
How to make $500 a month in dividends is a question people frequently ask. They are right as who wouldn’t want to earn an extra $500 a month in passive income? However, it is of paramount importance to invest wisely and efficiently. You can follow the 5 steps described above to achieve your $500 a month in dividends income goal. But it is important to keep a few factors in your mind.
Firstly, you need to invest in high-quality dividend stocks as they have a long track record of paying dividends consistently. Secondly, you also need to invest in stocks offering 3.5% or fewer dividends. It is important because stocks offering higher dividend yields are risky.
Thirdly, you should also go for diversification when investing in dividend income. Over-exposure to one or a couple of stocks is risky. That is because the financial crisis and the resulting decline in the share prices of one company affect your overall portfolio. Additionally, you can also invest in companies operating in different industries.
Fourthly, if you don’t have a capital requirement to make $500 a month in dividends, keep investing in your portfolio. It will help you finally achieve your monthly dividend goals. Finally, you should also account for income tax payments. If you are liable for tax payments, you may aim for a slightly higher dividend yield to cover tax payments. You can easily make $500 a month in dividends by following all these steps and tips. Best of luck!