If you’re looking into investment options, you’ll want to make sure you consider monthly dividend stocks. The dividends they pay are a great way to increase your monthly cash flows, and many investors depend on them to cover their monthly expenses. However, whether these stocks are a worthwhile investment for you or not, will completely depend on your individual investment goals.
Monthly dividend stocks are worth it and are usually a good investment. Many investors prefer them since they make it easier to pay the monthly bills and maintain recurring cash flows. Plus, monthly dividend stocks are great for compounding returns, allowing you to generate even more returns in the long run.
Overall, adding some monthly dividend stocks to your portfolio is a great way to diversify it further. The dividends you receive also allow you to receive a reliable source of income every month. There’s a lot to learn about why monthly dividend stocks are worth it, so let’s get started.
IMPORTANT SIDENOTE: I surveyed 1500+ traders to understand how social trading impacted their trading outcomes. The results shocked my belief system! Read my latest article: ‘Exploring Social Trading: Community, Profit, and Collaboration’ for my in-depth findings through the data collected from this survey!
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Why Are Dividend Stocks Worth It?
There are plenty of financial reasons as to why you should invest in dividend stocks. To start, investors find them more reliable, as the dividends you receive should always be consistent. So, even if the stock market is going through a rough patch, you can still earn an income from your yields.
Additionally, dividend stocks also offer a strong hedge against inflation.
This benefit comes from the consistent yields, which help prevent the money you save from losing its value. If you allow the money to grow for longer, your savings will be better protected from inflation.
For anyone who wants to learn more about dividends, the book Dividend Growth Investing: Get a Steady 8% Per Year Even in a Zero Interest Rate World on Amazon.com will be a great read. It offers plenty of information and acts as a guide you can use in the investing world.
Finally, the dividend stocks are tax-advantaged, while many other income options aren’t. This feature means that your dividends are eligible for some favorable tax exemptions. You can receive a variety of tax benefits by using these types of investments, over some other popular trading methods.
Now, let’s discuss how to best make monthly dividend stocks worth your while even further.
How to Identify Good Monthly Dividend Stocks?
You’ll want to look at the fundamentals of the company offering monthly dividends before purchasing any of its dividend stocks. Companies with expected long-term earnings, good cash flow, low debts, and a solid place within the industry are usually a great choice for dividend investing.
Additionally, you want their projected earnings growth to fall between five and 15%.
That being said, many different factors can impact the dividend yield. You want to find stocks that are not only high-paying today, but that are also unlikely to cut dividend yields in future. Therefore, it is a must that you only consider stocks from reliable and proven companies that have strong fundamentals when building a monthly dividend portfolio.
A good dividend yield is between 2 and 6%. However, you can find higher options if you want to take them. The higher the dividend yield is, the more money you earn off of your investments each month. And, the more you can invest, the more you can make.
Why Do Companies Offer Monthly Dividends?
You may also wonder why companies are willing to offer monthly dividends to their investors. There are a few main reasons why they do this.
Dividends are a great way to increase investor loyalty to the company.
They also significantly increase the demand for a company’s stock. Many investors buy a dividend stock when they usually wouldn’t have invested in that business.
In addition, when a company pays their dividends consistently, they are able to demonstrate having solid and reliable finances to the stock market. Doing so shows investors that the company has a great future ahead of it.
Overall, dividends are not only beneficial for the investors, but are also very beneficial for companies that offer them. Without them, there is a lower demand for the stock, which causes the prices to go down, thereby limiting the capital that these companies can raise from the stock market.
Since most companies with a history of paying consistent dividends have solid fundamentals, you’ll want to consider adding them to your portfolio for earning passive income. However, remember that not every great company is going to offer dividends, so passive income should never be your only criteria.
How Much To Invest in Monthly Dividend Stocks?
Once you’ve chosen a reliable place to invest your money, you need to know how much to invest. Additionally, it’s best to reinvest all of the dividends you make for a while. That way, your investment and dividend yield can steadily increase.
Compounding interest will work to your advantage. You can quickly learn more about compounding interest by watching the summary video below:
To determine how much to invest to reach your monthly income goal, you’ll want to consider your goals first.
Many people shoot for $500 to $1,000 per month. However, you can start with lower amounts and work your way up over time.
Keep reading to learn how much you should invest in making a certain amount every month.
How Much To Invest for $500 a Month in Dividend Income?
You’ll want to invest in dividend stocks that offer yields of 2% to 6% each month.
If you go too much higher than that, you add more risk to your portfolio. From there, you need to figure out how much investment is required to make the $500 monthly in dividends.
You’ll first need to know the investment yield. You can calculate this by dividing the annual amount of dividends by the market value of your dividend portfolio.
For a $500 monthly income, you know you need to make $6,000 yearly in dividends. If you have a dividend yield of 6%, you need to invest $100,000 into your dividend stock portfolio.
Here’s how I came to that conclusion:
- $6,000 (yearly dividend income) / 6% (dividend yield) = $100,000
Overall, you can use this formula to determine how much you need to invest for the dividend yields you want to receive.
If you can’t support that $100,000 right away, you can always allow the dividends to reinvest until they reach the amount you want to receive. The process is passive, although you’ll still need to practice a lot of patience.
How Much To Invest for $1000 a Month in Dividend Income?
A goal of $1,000 per month is another common goal that many investors have.
You can use the above method to determine how much you need to invest in your portfolio. Many people allow compounding interest to passively build up over time with their investments, which works excellent to meet long-term goals.
Most investors look to invest about $400,000 in their stocks to receive $1,000 in dividends. This amount comes from the average dividend value of 3%.
- $12,000 (yearly dividend income) / 3% dividend yield = $400,000
Of course, you might be able to find a higher paying dividend yield than 3%, as $400,000 is a lot of money to have on hand at any given moment. That means that you’ll need to use compounding interest to build up to that amount. Do this by reinvesting the dividends into the stock.
As you reach your goal, you can have your monthly payments deposited into your bank accounts instead.
What To Do Before Investing in Monthly Dividend Stocks?
Before you invest in any stock, you want to make sure you research the company. You also want to evaluate the company’s fundamentals and ensure that the investment isn’t too risky for your risk appetite.
Plus, always check the stock’s payout ratio.
This information tells you how much of the company’s funds are going into their dividends. If it’s above 80%, that’s a sign that the company is putting too much money into their dividends. However, it also depends on the industry of the business since this amount varies slightly across the board.
Author’s Recommendations: Top Trading and Investment Resources To Consider
Before concluding this article, I wanted to share few trading and investment resources that I have vetted, with the help of 50+ consistently profitable traders, for you. I am confident that you will greatly benefit in your trading journey by considering one or more of these resources.
- Roadmap to Becoming a Consistently Profitable Trader: I surveyed 5000+ traders (and interviewed 50+ profitable traders) to create the best possible step by step trading guide for you. Read my article: ‘7 Proven Steps To Profitable Trading’ to learn about my findings from surveying 5000+ traders, and to learn how these learnings can be leveraged to your advantage.
- Best Broker For Trading Success: I reviewed 15+ brokers and discussed my findings with 50+ consistently profitable traders. Post all that assessment, the best all round broker that our collective minds picked was M1 Finance. If you are looking to open a brokerage account, choose M1 Finance. You just cannot go wrong with it! Click Here To Sign Up for M1 Finance Today!
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Conclusion
In short, monthly dividend payments are always a great source to generate passive income through your portfolio. You can determine the exact amount you want to receive in dividend payments, then work towards that goal.
Eventually, you’ll be receiving the amount you want in passive income through dividend investing.
Overall, it takes a lot of time to work with dividends. You need to invest a lot of money into your dividend stock portfolio. Still, with dividend stocks, you’re sure to enjoy the benefits of having a reliable, passive source of income. If you want to learn more about dividend stocks, there are plenty of articles on my site for you to read.
BEFORE YOU GO: Don’t forget to check out my latest article – ‘Exploring Social Trading: Community, Profit, and Collaboration’. I surveyed 1500+ traders to identify the impact social trading can have on your trading performance, and shared all my findings in this article. No matter where you are in your trading journey today, I am confident that you will find this article helpful!
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