5 Steps For Learning How To Get Dividends From Stocks
Would you like to know how to make $100 a month in dividends?
Then I’m here to tell you that learning how to get dividends from stocks is simple. For a beginning dividend investor, just break the goal down into manageable steps.
For an overview, here are the 5 steps for making money from dividends.
How To Make $100 A Month In Dividends: A 5 Step Plan
- Choose a desired dividend yield target
- Determine the amount of investment required
- Select dividend stocks to fill out your dividend income portfolio
- Invest in your dividend income portfolio regularly
- Reinvest all dividends received
We will dive into each of these steps for investing in dividends shortly. But first, I want to relay a recent comment from a reader. In hopes, it will inspire you to learn how to make dividend income.
Disclosure: At no cost to you, I may get commissions for purchases made through links in this post.
Making Money From Dividends
Reader Comment: I am working on making money from dividends right now. I set my monthly dividend income goal pretty low. But I hope to get to $500 a month in dividend income eventually. I just started buying dividend stocks in March.
My Reply: Congratulations and good luck! You have accomplished 2 important things. First of all, getting started. And secondly, setting a goal.
Not to complicate things, but there is a little more to it. More than just those 2 things I mentioned in my reply.
So next, let’s dig into the 5 steps to make $100 a month in dividends.
When we are done, you will be able to get busy building your $100 a month dividend income portfolio. Because you will know exactly how to get dividends from stocks.
And before you leave. Check out all of our dividend investing resources. To level up your dividend investing game.
1. For $100 A Month In Dividends First Choose A Desired Dividend Yield Target
Your first step to making $100 in monthly dividends? It is to choose a dividend yield target.
What Is Dividend Yield?
The dividend yield is the annual amount of dividends paid by a company divided by the company’s stock price.
For example, let’s assume Company X pays $3 per share in dividends during the year. And Company X’s share price is $100. Then, the dividend yield is, $3 divided by $100, or 3%.
More On Dividend Yields When Learning How To Earn Dividends
A stock’s dividend yield changes almost every day. And it changes for 2 reasons.
First of all, the dividend yield has an inverse relationship to a stock’s price. In other words, as a stock price moves higher, its dividend yield will fall. And vice versa. This is the reason for daily changes to a stock’s dividend yield.
The 2nd reason for a dividend yield to change is due to management. Because management can elect to increase or decrease their stock’s dividend per share.
Furthermore, they can do so at any time. But changes to dividend yield because of management decisions happen much less frequently.
Finally, when I choose dividend stocks, I prefer dividend yields between 3% and 5%. Why? Because the dividend yield tells me some important information.
What Does Dividend Yield Tell You When Seeking Dividends From Stocks?
Stocks with dividend yields less than 3% simply do not pay enough, in my opinion. On the other hand, stocks with dividend yields greater than 5% may indicate a higher degree of investment risk.
Of course, I make exceptions to my 3-5% dividend yield rule of thumb. But, it’s a good starting point for choosing dividend stocks. Hopefully, you can see the significance of the dividend yield too.
Why is choosing a target dividend yield important? Let’s cover that next. In step 2 of our plan for learning how to get dividends from stocks.
2. Determine The Investment Required To Make $100 A Month In Dividends
Each stock in your dividend income portfolio will have a dividend yield. Each dividend stock will then combine to generate a dividend yield for your entire dividend income portfolio.
To Make Money With Dividends Calculate Portfolio Yield
So, let’s say my dividend portfolio example yields 4% in total. That’s right in the middle of my 3-5% range. Your portfolio yield may be different.
Calculate yours by taking the annual amount of dividends paid from all your dividend stocks. And divide that by the market value of your dividend income portfolio.
Knowing your dividend income portfolio’s yield will tell you how much you need to invest to make $100 in dividends every month. Let me show you.
How Much You Need To Invest To Make $100 A Month In Dividends
To calculate the amount of investment required, first take $100 a month times 12 months. That gives us $1,200 in annual dividend income.
Then take that $1,200 and divide it by your target dividend yield. 4%, in this example. Thus, $1,200 divided 4% which is .04 gives you $30,000.
As a result, $30,000 is much you will need to invest to make $100 a month in dividends assuming your portfolio yields 4%.
Let’s Revisit The Investment Required To Make $100 A Month In Dividends
Maybe saving and investing $30,000 seems out of reach? If so, you may revisit your target dividend yield.
Let’s say, you decide to move your target dividend yield up to 6%. Because you have decided to invest in stocks that pay the highest dividends.
With a 6% dividend yield, you only need to save and invest $20,000. That is $1,200 divided by 6%.
Dividend Safety Is Important When Making Money From Dividends
Just remember, stocks with higher dividend yields can signal higher investment risk. This is also referred to as a stock’s dividend safety. Low dividend safety means a company may not be able to sustain its dividend payment in the future.
What can happen if a stock’s dividend is not safe? There are several possibilities. Management may choose to
- Stop increasing the dividend
- Suspend the dividend for an indefinite period
- Reduce the dividend
A dividend that is no longer increasing may or may not be a bad sign. Sometimes it is an early indicator of a dividend that is at risk for reduction or suspension.
Dividend reductions and suspensions are a big bump in the road to making $100 in monthly dividends. So, you should try to avoid risky dividends at all costs.
Hopefully, this has not scared you away. Because there are plenty of stable and consistent dividend stocks for your investment dollars. Where the dividend has little to no risk.
So, hopefully, you are still interested in how to get dividends from stocks? If yes, it’s time for step 3 in our plan to make $100 in monthly dividends.
3. Select Dividend Stocks That Will Achieve Your $100 A Month In Dividends Goal
Now it’s time to pick good dividend stocks to own. There are many considerations when selecting dividend stocks. For making money from dividends.
But a few are more important when your goal is to make $100 in monthly dividend payments. Thus, here are several things you will want to pay close attention to.
For Making Money From Dividends, Choose The Right Stocks
The past is not always a great indication of the future. But in the case of dividend-paying companies, history can tell us a lot.
You should fill out your dividend income portfolio with solid dividend-paying companies. Those companies with long-term track records of making dividend payments to shareholders. And increasing their dividend payments on a regular basis.
There are 3 lists of dividend-paying companies that are quite helpful in this regard.
First, are the Dividends Kings. They are companies that have paid and increased their dividends for at least 50 years in a row.
Second, are the Dividend Aristocrats. They represent companies trading in the S&P 500 stock index. Also, they have paid and increased their dividends for at least 25 consecutive years.
Finally, let me explain the list of Dividend Achievers. They are stocks that have raised dividends for at least 10 years in a row.
Get Dividends By Picking Stocks That Meet Your Dividend Yield Profile
When you build a dividend portfolio for regular income, don’t forget step 1. That’s where you chose your desired dividend yield target.
The dividend yield helped us understand how much investment is required to make $100 a month in dividends. It also helps you choose your dividend stocks.
Using the 4% target dividend yield as an example, look for companies that meet that target. Most companies will not have a dividend yield of exactly 4%. As we discussed, dividend yields change almost every day.
So set a range. Let’s say between 3.75% and 4.25%.
For Monthly Dividend Payments, Know A Stock’s Payment Pattern
You want to make $100 a month in dividends. Right? That’s why you are here and reading this.
So, understanding when each company you choose pays its dividends is important.
Most U.S. dividend stocks pay out quarterly, or 4 times per year. Furthermore, there are three common quarterly payment patterns that a company will usually follow. They are stocks that pay dividends in:
- January, April, July, October
- February, May, August, November
- March, June, September, December
To build a dividend portfolio that pays you $100 in monthly dividends, you need at least 3 different stocks. One in each of the quarterly payment patterns.
If you have 6 stocks, select 2 for each payment pattern. 9 dividend stocks, then 3 for each payment pattern. I’m sure you get the idea.
Why is this important? By equally balancing the number of stocks in each dividend stock payment pattern category, you will be making money from dividends every month.
And those dividend payments will be roughly equal each month. Recall, $100 in monthly dividends is the goal. This way, you get at least 1 dividend payment every month.
How Many Dividend Stocks Are Required To Make $100 In Monthly Dividends?
There is no 1 right answer to this question. When going for our goal of making money from dividends.
Get Dividends From 1 Stock
First of all, you can get monthly dividend payments with just 1 stock.
How is that? Because there are some stocks that pay shareholders dividends every month.
My favorite company that pays monthly dividends is Realty Income. Realty Income is a REIT. REIT stands for real estate investment trust.
Realty Income is also known as the monthly dividend company. Furthermore, there are dozens of other companies that pay monthly dividends.
But, be careful, 1 stock does not provide enough diversification, in my opinion. And stocks that pay dividends monthly tend to be a little riskier. And clustered in just a few sectors of the stock market.
Remember back to our discussion about dividend safety. It is important. And just because a certain stock pays monthly dividends doesn’t mean you should invest in it.
Get Dividends From 3 Stocks
So, a second option would be starting a dividend portfolio with 3 stocks. As we just discussed, pick 1 dividend stock from each of the quarterly payment patterns.
Get Dividends From A Larger Portfolio Of Dividend Stocks
Finally, a third option based on academic research, suggests 20-25 stocks. Academics say this is optimal for diversification.
Because research shows that less than 20 dividend stocks may not provide enough diversification. More than 25, and the incremental diversification benefits from each additional dividend stock are minimal.
What Is Your Number of Stocks To Get Dividends Every Month?
For getting dividend income, you may fall somewhere in the middle of this range from 1 to 25. As I said first, there is no 1 exactly correct answer to this question: how many stocks do you need.
So, get started with at least 3 dividend stocks. But realize, there is little need for more than 20.
Just be sure that you spread your stocks between different industries. For example, don’t buy a bunch of utility stocks just because they yield 4%. Or, pay dividends in certain months.
You can find some great dividend investment ideas in my model dividend stock portfolio. Be sure to check it out before you go.
Also, I would like to share some of the other resources I use to get dividends from stocks and generate monthly dividend payments. Let’s cover those now.
Additional Resources For Making Money From Dividends
For your journey to $100 a month in dividends, allow me to mention some tools I use to build, manage, and analyze my dividend stocks. Into a solid dividend portfolio.
First, you need a brokerage account to buy stocks. Most noteworthy, be sure to trade stocks for free.
I use the Webull app. It’s fast, powerful, and easy to use. And, for a limited time Webull, is offering free stock to anyone who signs up and funds their account.
Also, we can all get better at dividend stock selection. It is a process of continuous learning. Beyond the lists of Dividend Kings, Aristocrats, and Achievers.
For further research and recommendations. Here are 3 resources I use and recommend.
First of all, the Simply Investing Report provides analysis and dividend stock recommendations. Its focus is on quality dividend-paying stocks from the U.S. and Canada.
Furthermore, Morningstar provides expert investment research. I’ve been using Morningstar’s investment analysis for more than 15 years.
And finally, the Stock Advisor from Motley Fool is an excellent resource. They have a solid long-term track record dating back to 2002.
Each of these stock research tools is a little different. So, one or more should fit with your style.
Okay. 3 steps down and 2 to go in our quest to learn how to make money with dividends. So, let’s move to step 4.
4. Invest Regularly And Build Up To $100 A Month In Dividends
Step 4 in our plan for $100 in monthly dividends may be the toughest of all. But if you want to know how to get dividends from stocks this is important. Why is that?
Because choosing dividend stocks and investing in them is fairly easy. With a little knowledge, research, effort, and the right tool most anyone can learn how to earn dividends.
But your biggest personal finance challenge may be making more money. Also, spending less than you make.
That simple equation creates excess cash for your plan to get dividends from stocks. In other words, you have to create excess cash to invest in the dividend stocks of your choosing.
Make More Money For Your Monthly Dividend Payments Program
How do you earn more money? You do so by:
- Investing in yourself
- Improving your skills
- Creating more value in your business, or for your employer
Here’s a resource to improve your resume and find a better paying job.
Also, spend some time working a side hustle. That can bring in some extra cash too.
Get paid to take consumer surveys. It won’t change your money world overnight. But, every little bit of extra cash counts.
Especially when getting started. On your goal to get dividends from stocks. And specifically, $100 a month in dividends.
Next, let’s talk saving money. Every dollar you save accelerates your plan to making money from dividends.
Save More Money For Your Dividend Income Portfolio
I know. It’s no fun to scrimp and save money. But, spending less than you make is the second part of the earn more than you spend challenge.
Here are a few tips for saving money to feed your $100 monthly dividend payments program.
Consider how you can reduce your costs and save money. Think about your spending on these 4 big-ticket items and look to cut your expenses in these areas wherever it makes sense.
- Housing
- Transportation
- Food and Beverage
- Leisure activities
With the new trend of eating at home more. Instacart is a great option for saving money on your groceries.
Sharpen your pencil and go through your budget with a fine-tooth comb. When you are making $100 a month in dividends, you will be glad you did.
Not sure where to start? Here are a couple of suggestions that work for us.
We save on just about all our everyday online purchases through Rakuten. Also, Rakuten gives you $10 just for signing up and using their app.
And finally, I pull all of my finances together using Personal Capital. It allows me to see all my spending and investments in 1 place. Best of all, Personal Capital is free to sign up and use.
Okay. We are now ready for the last step in our journey to $100 a month in dividends. That is dividend reinvestment.
Dividend reinvestment is important. If you want to grow a dividend snowball.
After this step, you will know exactly how to get dividends from stocks. So, let’s do it…
5. Reinvest All Dividends To Accelerate Your $100 A Month In Dividends Plan
You have a couple of options for reinvesting your regular and recurring dividend payments.
First of all, you can automate dividend reinvesting. What this means is that you tell your brokerage firm to automatically reinvest the dividends paid by a company back into that company’s shares.
The advantage of automated dividend reinvesting is that once you set it up, you can forget it. And your cash from dividends is put back to work in your dividend stocks right away.
On the other hand, investment decisions are taken out of your control. You may automatically reinvest in shares of an overvalued stock. Ora stock you own too much of already. Or worst case, a stock whose dividend is no longer safe.
The second option is to let your dividends accumulate in cash. And then when you are making your monthly dividend stock purchases. Add your dividends collected to the amount you are saving each month. Then, put that money into the dividend stocks of your choice.
Either of these dividend reinvestment methods is fine. It’s a matter of personal preference. And by all means, if you will be tempted to spend your dividends, reinvest them automatically.
Finally, when you achieve your goal of $100 in monthly dividend payments you have the option to stop reinvesting. That choice is yours. Once you have achieved your goal!
Maybe. Just maybe. When you achieve $100 a month in dividends you will be tempted to set your monthly dividend goal higher. And continue the process.
Because whether you want to make $100 a month in dividends, $500, $1,000 from dividends, or more. The 5 step plan that we have discussed today is the same.
So, let’s summarize the 5 steps for making money from dividends. Then move on to some frequently asked questions.
How To Make $100 A Month In Dividends – 5 Step Summary
- Choose a desired dividend yield target
- Determine the amount of investment required
- Select dividend stocks to fill out your dividend income portfolio
- Invest in your dividend income portfolio regularly
- Reinvest all dividends received
Almost done. But, not quite. Just a few FAQ’s to cover.
Frequently Asked Questions About How To Get Dividends From Stocks
Let’s cover several frequently asked questions about making extra money from dividends. Then I will wrap up.
Can You Lose Money On Dividend Stocks?
Yes. You can lose money on dividend stocks.
There are no guarantees when investing in any stock. A company’s stock can go down if the company’s business performs poorly. Also when the overall stock market encounters a correction, bear market, or crashes.
On the other hand, you can increase the odds in your favor. By selecting stocks where management has increased the dividend rate for many years in a row.
This indicates the company and has a proven and sustainable business model. Through good times and bad.
Next question if you want to know how to make money off dividends…
How Long Do You Have To Hold A Stock To Get The Dividend?
Technically speaking you need only to hold a stock for 1 day to get paid its dividend. Specifically, you must own the stock at the close of stock market trading on the day BEFORE the ex-dividend date.
As the owner of stock before the ex-dividend date. You are entitled to the dividend rate per share declared and approved by the company. Multiplied by the number of shares you own.
Setting the ex-dividend date is part of a company’s dividend approval process. And each time a company declares a dividend. They communicate the ex-dividend date to the public.
But a word of advice. If you are interested in making money from dividends. Think long-term!
Buy quality dividend stocks. With a high degree of dividend safety. Then try to buy and hold forever.
Furthermore, attempting to time your investments. Around the ex-dividend date is not a good long-term strategy.
Finally, if you want to know how to get dividend income. Think about taxes too…
Do You Need To Pay Taxes On Stock Dividends?
The answer is usually, yes. You will be required to pay taxes on the dividends you receive. But, the amount of tax depends.
First of all, it depends on your overall tax situation. In some cases, no taxes will be due.
Furthermore, it depends on the type of dividend stock you invest in. Some company’s dividends are “qualified” and receive preferential tax treatment. In the form of lower tax rates.
Other company’s dividends are not qualified. Previously mentioned Realty Income is an example of stock whose dividends are not qualified dividends for tax purposes.
Finally, when it comes to the amount of your taxes on dividends. Do the research specific to your situation. Or consult with a tax expert.
How To Make $100 A Month In Dividends: Wrap Up
As I said in the beginning, learning how to get dividends from stocks is simple.
Set your goal for the amount of money you want to make each month from dividends. Then get started.
By following the 5 step plan:
- Choose a desired dividend yield target
- Determine the amount of investment required
- Select dividend stocks to fill out your dividend income portfolio
- Invest in your dividend income portfolio regularly
- Reinvest all dividends received
Some Dividend Stocks To Consider For Your $100 A Month In Dividends Portfolio
- One of the most well-known technology companies
- A stock with one of the highest dividend safety scores
More Tools For Making Money Off Dividends
I referenced several tools and resources throughout the article. Many of which I have used for creating an income portfolio for monthly dividend payments. Here they are summarized for your convenience.
Author Bio: Tom Scott founded the consulting and coaching firm Dividends Diversify, LLC. He leverages his expertise and decades of experience in goal setting, relocation assistance, and investing for long-term wealth to help clients reach their full potential.