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I am 29 years old. I do freelance work and I can save around $500/Month from that.

In my country, $1500/month is more than enough to cover all living/health/entertainment expenses for me and possibly for my future family and should be the case for years.

I am 80% sure that $1500/Month will still be enough for a family to live on in 2040. I don't care about the stock's value. I only care about living off the dividends and never touching the principal. Maybe my kids will be able to live off it too.

I want to retire after I save the sum of money needed to generate $1500/month in dividends. My question is how much money is that?

samouray
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3 Answers3

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One practical solution is to invest in an ETF like DGRO. Currently it is yielding 2.29%, so to live off of divdends, you have:

(1500*12) / .0229 = 786,000.

At $500/month, you have some work to do.

Pete B.
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  • This comment always opens a can of worms --> Dividends are cash flow, not income so if your equity position does not appreciate, you're just spending down your own money rather than "living off dividends". It's even worse if it's a non sheltered account since you'll pay taxes for the privilege of receiving that cash flow. Fortunately, over the long haul, stocks generate positive returns and share price appreciates. Don't believe me? Here's a real world example. – Bob Baerker Oct 31 '19 at 19:03
  • Buy 100 shares of AT&T on 2/04/16 for $36.53 worth $30.62 on 2/19/19 for paper loss of $5.91. Loss was due to the stock exchanges marking share price down 12 times on the ex-dividend dates.You received 12 dividends for a total of $5.91. $5.91 is withdrawn from the account to live on. So riddle me this, how does a paper loss of of $5.91 with $5.91 withdrawn from your brokerage account which resulted in a total return of ZERO amount to an INCOME STREAM? It's just spending down an asset with the cash flow a dividend provides. When taxes considered, the total return was negative. – Bob Baerker Oct 31 '19 at 19:04
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    @BobBaerker T closed today at $38.49, for a paper gain of $1.96. Why are you cherry picking closing prices when clearly dividend drops are not the only thing that affects a stock's price? – chepner Oct 31 '19 at 20:31
  • @chepner - The purpose of cherry picking dates is to demonstrate that when a stock does not recover the share price reduction by stock exchanges on ex-div date, then there is no income. Total return is ZERO, ignoring taxes. Your mentioning today's paper gain of $1.96 simply introduces another variable into the equation, making it more complex. It has nothing to do with statement that dividends are not true income. Share price appreciation is a separate event. If you want to do so, you must calculate dividends AND cap gain which is easy to do but merely a distraction from the point made. – Bob Baerker Oct 31 '19 at 20:54
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    @BobBaerker, my grandmother installed $1000 in AT&T in a DRIP on me when I was 6 months old (pre baby bells; and some went to college tuition). I now receive nearly $1500 per year from AT&T, Comcast, and Century Link. I will take as an exercise to try to calculate what in 43 years the original position have sent in dividends, and if there has been share appreciation or not. – user662852 Nov 01 '19 at 01:03
  • @user662852 - Congratulations to you for having several DRIPs that provide $1,500 a year to you in dividend payments. Your grandmother had good foresight. However, this isn't about the benefits of a DRIP, how well an investment has performed, or the compounding that occurs when share price appreciates (which it had to have done since AT&T's share price isn't negative). It's a simple statement that when a stock goes ex-dividend, share price is reduced by the exact amount of the dividend, resulting in ZERO total return on the ex-dividend date. Don't confuse and conflate multiple issues. – Bob Baerker Nov 01 '19 at 01:35
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That depends, what will you be investing in for dividends? Will it be a mutual fund/index fund/ETF that will produce a 0.5%-3% dividend? Possibly a bond fund that will give ~2% in dividends? Will it be energy/oil stocks that can give anywhere from 2%-7%? How about REITS that can give anywhere from 2%-8%? That all depends on you, but I will set up the equation for you. Assuming you want a 4% dividend per year (a fairly healthy dividend rate for a portfolio), with $1500/month payout (on average since dividends usually pay out quarterly) you will be looking at:

($1500/month * 12 month) / 0.04 = $450,000 total invested

here is the general form of the equation:

payout_per_month * months_in_a_year / dividend_rate = total_invested

EDIT It also looks like you asked a similar question here. Why not use the same logic and edit it to be $1500 instead of $1000?

rhavelka
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While dividends are cash flow rather than income, it's somewhat different with preferred stocks since they are a hybrid security, leaning more toward fixed income.

The bulk of them are issued at $25 and are callable in 5 years at the discretion of the issuer with a maturity date which can be decades or even never (perpetual).

There are three primary risks.

The first is the quality of the issuer which is fairly easy to achieve. Only buy investment grade issues. Don't buy junk (C or lower).

The second is longer term interest rates. Preferred stocks behave like bonds and move inversely to rates. They may over react to Fed fund rate increases but they tend to recover from that in a reasonable amount of time. A perfect example of this occurred in the latter half of 2018 when preferred stocks were whacked as rates rose. They've risen more than 10% since then even though rates only dropped modestly. This behavior would be irrelevant since you indicated that you don't care about share price value.

Lastly, most preferred are callable in 5 years. When called, if rates are lower, you won't be able to replace your higher income positions and your yield will drop. Warning: Don't buy preferreds that are significantly above par and are callable in a year or two.

To answer your question more specifically, investment grade U.S. preferred stocks currently pay about 5.6%. To generate $1,500 a month, you'd need about $321k, even more if you have to pay taxes on the dividends and you want $1,500 per month after taxes.

And while trading appears to be the bane of this board, you can bump that 5.6% yield up several percent by occasionally swapping out appreciated issues. Even more than that when there's an interest rate cycle, something we haven't seen for more than a decade.

Bob Baerker
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