How Much $ to Invest to Live Off Dividend Stocks

Can You Live Off Dividends?

Yes. You can live off dividends. It takes a combination of factors to make it happen.

First of all, develop the motivation to live off dividends. Motivation is key because achieving your goal will take time and discipline.

Then you must manage your finances wisely in the years leading up to living off dividends. Finally, the last requirements are to master running a dividend portfolio. But only after you learn the steps to build a dividend stock portfolio. 

Master these elements. And you will be living off your stream of dividend income faster than you might believe.

It’s All About Dividend Growth

Stock dividends tend to grow over time, unlike the interest from bonds. That’s one of the main reasons why stocks should be a part of every investor’s portfolio. Furthermore, dividend growth has historically outpaced inflation. For those investors with a long timeline, this fact can be used to create a portfolio that is strictly for dividend-income living.

A smart strategy for people who are still saving for retirement is to use those dividends to buy more shares of stock in firms. That way, they will receive even more dividends and be able to buy even more shares.

For example, assume you bought 1,000 shares of a stock that traded for $100, for a total investment of $100,000. The stock has a 3% dividend yield, so you received $3 per share over the past year, which is $3,000 in dividends. You then take the dividends and buy more stock, so your total investment is $103,000. Assume the stock price doesn’t move much, but the company increases its dividend by 6% a year. In the second year, you will get a dividend yield of 3.18% on $103,000 for a dividend of about $3,275. However, that is a yield on cost of about 3.28%.

This dividend reinvestment strategy continues to increase the yield on cost over time. After ten years, the hypothetical portfolio from the previous paragraph will produce around $7,108 in dividends. After 20 years, you will receive more than $24,289 a year in dividends.