Build A Dividend Portfolio For $500 In Monthly Dividend Payments
Would you like to know how to make $500 a month in dividends?
I hope you answered yes. Because I’m going to show you 5 steps to build a dividend portfolio for $500 in dividends every month.
For an overview, let’s first look at the 5 steps.
How To Make $500 A Month In Dividends: Your 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
Then, when we are done, you will know exactly how to make $500 a month in dividends. And be able to get busy building your dividend income portfolio 1 stock at a time.
Disclosure: At no cost to you, I may get commissions for purchases made through links in this post.
So, there is no reason to delay. First, let’s dive into each of these 5 steps to create monthly dividend payments.
Then, when we are done with learning exactly how to make $500 in monthly dividends. I would like to address some frequently asked questions.
Let’s get moving…
1. For $500 A Month In Dividends Choose A Desired Dividend Yield Target
All dividend journeys start with a first step. Your first step to making $500 in monthly dividends 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 XYZ Company pays $3 per share in dividends during the year. And XYZ’s share price is $100. Then, the dividend yield is, $3 divided by $100, or 3%.
When I choose dividend stocks, I prefer them with yields between 3% and 5%. Why? Because the dividend yield tells me some important information.
What Can A Stock’s Dividend Yield Tell Us When Seeking Monthly Dividends?
Stocks with dividend yields of 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 growth stocks.
Why is choosing a target dividend yield important? Let’s cover that next, in step 2.
2. Determine The Investment Required To Make $500 A Month In Dividends
Each holding in a dividend income stock portfolio will have a dividend yield. Furthermore, each dividend stock will then combine to generate a dividend yield for the entire dividend income portfolio.
Calculating A Dividend Income Portfolio’s Yield
So, let’s say your dividend portfolio 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 $500 in dividends every month. Let me show you.
Calculating The Investment Required To Make $500 A Month In Dividends
To calculate the amount of investment required, first take $500 a month times 12 months. That gives us $6,000 in annual dividend income.
Then take that $6,000 and divide it by your target dividend yield. 4%, in this example. Thus, $6,000 divided 4% which is .04 gives you $150,000.
As a result, $150,000 is how much you will need to invest to make $500 a month in dividends assuming your portfolio yields 4%.
Revisiting The Investment Required To Make $500 In Monthly Dividend Payments
Maybe saving and investing $150,000 seems out of reach? If so, you may revisit your target dividend yield.
To adjust the investment required, change 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 with higher dividend yields.
With a 6% dividend yield, you only need to save and invest $100,000. That is $6,000 divided by 6%.
Just remember, higher dividend yields can signal higher investment risk. From a dividend income investor’s perspective, higher risk means a greater likelihood that a company may reduce or suspend its dividend in the future.
Dividend reductions are a big bump in the road to making $500 in monthly dividends. You should try to avoid a higher-risk dividend at all costs.
It’s now time for step 3 in our plan to make $500 in monthly dividends.
3. Select Dividend Stocks That Will Achieve Your $500 A Month In Dividends Goal
Now it’s time to pick your dividend stocks. There are many considerations when selecting dividend stocks for your dividend income portfolio.
But a few are more important when your goal is to make $500 in monthly dividend payments. Thus, here are several things you will want to pay close attention to.
For Monthly Dividend Payments, Choose The Right Dividend-Paying Companies
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 consistent dividend-paying companies.
Those companies with long-term track records of regular dividend payments to shareholders. A solid history of dividend appreciation is also an important consideration.
There are 2 lists of dividend-paying companies that are quite helpful in this regard.
First, are the companies known as Dividend Kings. They are businesses 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 that have paid and increased their dividends for at least 25 consecutive years.
This touches on the topic of dividend growth. We will talk more about this topic a little later.
Pick Dividend 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 $500 a month in dividends. Also, use your target dividend yield to choose the right dividend stocks.
Using the 4% target dividend yield as an example, look for companies that fulfill that target. Most companies will not have a dividend yield of exactly 4%.
So set a range. Let’s say between 3.75% and 4.25%.
For Monthly Dividends, Know Your Stocks Payment Pattern
You want to make $500 a month in dividends. Right? That’s why you are here and reading this.
So, understanding when each company you choose for your dividend income portfolio pays 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 likely follow. They are:
- January, April, July, October
- February, May, August, November
- March, June, September, December
When and how often a company pays dividends is part of its dividend policy. A dividend policy is important. And every company has one. Even if they choose not to communicate it to the public.
To build a dividend portfolio that pays you $500 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 from each payment pattern. 9 dividend stocks, then choose 3 from each payment pattern. I’m sure you get the idea by now.
Why is this important? By equally balancing the number of stocks in each payment pattern category, your dividend income portfolio will allow you to get stable dividends from dividend stocks every month.
And those dividend payments will be roughly equal each month. Recall, $500 in monthly dividends is the goal. This way, you get at least 1 dividend every month.
How Many Dividend Stocks Are Required To Make $500 In Monthly Dividends?
So, how many stocks are required for your dividend income portfolio? Unfortunately, there is no 1 right answer to this question when building a dividend portfolio for monthly income.
Consider these 3 options when determining the number of stocks to achieve $500 in monthly dividend payments.
1 Stock For Monthly Dividends
First of all, you can get monthly dividend payments with just 1 dividend stock.
How is that? Because some companies choose to make monthly dividend payments.
My favorite company that pays monthly dividends is Realty Income. Realty Income is a real estate investment trust (REIT).
Realty Income is appropriately known as the monthly dividend company. Furthermore, there are dozens of other companies that pay monthly dividends.
But, be careful, 1 stock that pays monthly dividends does not provide enough diversification, in my opinion.
3 Stocks For Dividends Every Month
A second option would be 3 dividend stocks. As we just discussed, pick 1 from each of the quarterly payment patterns.
Academics Say 20-25 Stocks For Monthly Dividend Payments
Finally, a third option based on academic research, suggests 20-25 stocks are optimal for diversification.
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.
And, as your holdings grow, you may want to consider non-U.S.-based dividend-paying companies. They can provide additional diversification benefits for a smaller dividend stock portfolio.
Your Number Of Stocks To Get $500 A Month In Dividends
For building a passive dividend income stream, you may fall somewhere in the middle of this range from 1 to 25. As I said first, there is no 1 right answer to this question.
Get started with at least 3 dividend stocks. But realize, there is little need for more than 30.
Just be sure not to have all of your holdings from the same stock sector. Depending on the size of your dividend income portfolio, each stock you buy should be from a different industry.
For example, don’t buy 10 utility stocks just because they yield 4%. Or, pay dividends in certain months.
Possible Stocks For A Dividend Income Portfolio
You can find some great dividend investment ideas in the model dividend stock portfolio I maintain on this site. Here are just a few of the stocks featured in it:
|Company – Business||Stock Symbol|
|AT&T – Telecommunications||T|
|Apple – Tech devices & software||AAPL|
|Coca-Cola – Beverages||KO|
|Southern Company – Electric Utility||SO|
|United Parcel Service – Logistics||UPS|
And, I would like to share some of the other resources I use for generating monthly dividend payments. Let’s cover those now.
Additional Resources For Selecting And Buying Your Dividend Stocks
For your journey to $500 in monthly dividend payments, allow me to mention some tools I use to build, manage, and analyze my dividend stock 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, free, 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 analyzing and selecting dividend stocks. It is a process of continuous learning.
Here are 3 resources I use and recommend for choosing your dividend stocks.
First of all, the Simply Investing Report provides analysis and dividend stock recommendations. It focuses 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.
4. Invest Regularly And Build Up To $500 A Month In Dividends
Step 4 in our plan for $500 in monthly dividends may be the toughest of all. Why is that?
Because choosing dividend stocks and investing in them is fairly easy. With a little knowledge, investment analysis, and effort most anyone can do it.
Your biggest personal finance challenge may be making more money. Also, spending less than you make. That simple equation creates excess cash for your monthly dividend investment plan.
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. For finding a better paying job.
Also, spend some time working a side hustle. That can bring in some extra cash too.
This little side hustle won’t change your money world overnight. But, every little bit of extra money counts.
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 on saving money to feed your $500 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 costs in these areas wherever it makes sense.
- Food and Beverage
- Leisure activities
Sharpen your pencil and go through your budget with a fine-tooth comb. When you are making $500 a month in dividends, you will be glad you did.
Not sure where to start? Here are several money-saving and money management 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.
Ibotta is another excellent cashback app we use to save money at the grocery store. Be sure to give one or both of these options a try.
And finally, I pull all of our 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 $500 a month in dividends. That step entails dividend reinvestment.
5. Reinvest All Dividends To Accelerate Your $500 A Month In Dividends Plan
You have a couple of options for reinvesting your dividends.
Automatically Reinvest Your Monthly 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 making dividends is put back to work in your dividend stocks right away.
On the other hand, investment decisions are taken out of your control. So, you may automatically reinvest in shares of a company with an excessive stock value. Or, a stock you own too much of already.
Accumulate Your Monthly Dividends & Reinvest Lump Sum
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. Each method will increase your dividend income over time.
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 $500 in monthly dividend payments you have the option to stop reinvesting. That choice is yours. Once you have achieved your goal!
So now, that concludes the 5 steps to make $500 a month in dividends. Keep at it long enough and you may even become a dividend millionaire!
But, hang on there. Don’t go just yet. Because I’m a long way from being done…
Frequently Asked Questions About Making $500 In Monthly Dividends
Please allow me to get inside your head for a few more minutes. And do so for a couple of reasons…
First, since you found your way here. I am assuming you are relatively new to dividend investing.
Or, at the very most, have some experience. And are looking to fine-tune and level up your dividend investing game.
So, I’m going to put myself in your shoes.
And do my best to anticipate some questions you may have about the 5 step plan for making $500 a month in dividends.
So, Tom, you mentioned it takes about $150,000 of investment. To make $500 a month in dividends.
And the investment may be more or less. Depending on a portfolio’s dividend yield.
So, my question is this…
How long will it take me to make $500 a month in dividends?
Everyone’s situation will be different. So, the short answer to this question is: it depends.
And it depends on 3 primary things…
First, how much can you save each month? And invest those savings in dividend stocks.
It stands to reason, someone investing $1,000 each month. Will get to the $500 monthly goal much faster. Versus an individual investing $50 per month.
Second, your portfolio’s current dividend yield. A higher yield will get you to your goal faster.
But don’t forget. Higher yields can be a warning sign. For a higher investment risk of loss.
Third, your portfolio’s dividend growth rate. Since faster dividend growth will get you to your monthly dividend income goal faster.
But numbers 2 and 3 are a little tricky. Because a stock’s dividend yield and its dividend growth rate are usually inversely related.
Thus, higher-yielding dividend stocks tend to increase their dividends by a smaller amount. Or, less frequently. And vice versa.
To sum up, by striving to increase each of these variables. You will achieve the goal of $500 a month in dividends more quickly.
On the other hand, allow me to emphasize an important point. Specifically, remember that dividend investing is a long-term investment strategy. It’s not a get-rich-quick scheme.
So, think about how to execute your dividend plan better. Not about doing it fast. And the results will take care of themselves in due time.
Next question, please…
You discussed selecting the right dividend stocks. And rattled off several things in the 5 step plan an investor should look for.
While also saying “there are many considerations when selecting dividend stocks”. Beyond companies with strong dividend histories. And the timing of their dividend payments.
Bringing me to my question…
What else should I look for when picking my dividend stocks?
Well, let me reemphasize. The Dividend Kings and Dividend Aristocrats lists are great places to source dividend stocks.
Whether you are trying to make $500 a month in dividends. Or, a lot more.
But, a good dividend investor will dig deeper. Beyond a company’s dividend history and dividend payment pattern.
Here are some of those things investors look for in blue-chip stocks paying dividends…
First, understand the company and how it makes money. Rule number 1 for any investor is always to understand exactly what you are investing in. And why.
Second, review the business fundamentals. So you know if the company is on good financial footing.
The key things to look for are recent financial trends. In revenues, accounting profits, and cash flow.
Third, assess the company’s financial position. Looking at the debt to equity ratio. And credit rating.
Fourth, look at the dividend payout ratio. Understanding how much a company pays in dividends. As a percentage of its earnings or cash flow is important.
A lower dividend payout ratio is generally better. Meaning the dividend is safer from a possible reduction in the future.
And last, there is stock valuation. But understand this. High-quality dividend stocks rarely go on sale.
On the other hand, the best investors look at stock value. And do not overpay. Or, they invest in small amounts regularly. To take advantage of fluctuations in stock prices.
Tom, this discussion raises another important thought. Since it seems like picking the best dividend stocks is a lot of work.
Leading me to my query…
Are there ways to earn dividends without picking individual stocks?
This is an easy question. Because the answer is without a doubt, yes.
Since many mutual funds pay monthly dividends. And exchange-traded funds (ETFs) too.
So, if you are not interested in picking individual stocks. Or, what to pursue a hybrid strategy with both stocks and funds. You can do so.
One of my favorite dividend funds is the Vanguard High-Dividend Yield ETF (VYM). But there are other good options too.
So, do your research on one or two funds. And invest in them regularly.
Otherwise, the 5 step plan for making $500 a month in dividends does not change. You are just choosing one or two funds. Rather than a larger quantity of individual dividend stocks.
Are there any other questions? Well, yes there are. How about the young lady in the back of the class.
You mentioned that a stocks payment pattern is important. But, when I research a stock. There are several dates that I do not understand.
For example, the dividend declaration date, ex-dividend date, and record date. So, my question is this…
What is the importance of the various dividend dates?
Okay. Yes. That is a good question. So, here is a brief rundown on important dividend dates.
A company sets these dates each time it approves and declares a dividend payment for shareholders.
Declaration date: This is the day a company announces a future dividend payment to the public.
Ex-dividend date: To receive the next dividend that has been declared, an investor must purchase their stock BEFORE the ex-dividend date.
Record date: The record date falls shortly after the ex-dividend date. All shareholders as of the record date receive the upcoming dividend.
To be a shareholder of record, you must own the stock at the close of trading on the day before the ex-dividend date.
Payable date: The day the dividend is paid to the shareholders of record.
While it’s nice to have a basic understanding of these dates. In my opinion, they are not all that important.
Why? Because of what I said earlier. Dividend investing is a long-term strategy.
Buy the best dividend stocks. And hold them for the long term. Then you will receive every dividend your stocks pay.
So, focus on the long-term health of your stocks. And their dividends. Not just the next dividend payment.
You talked about the appropriate number of stocks. To buy and hold in my monthly dividend portfolio.
I’ve been working on this for a while. And have achieved the number of dividend stocks that I want to hold for the long term.
So, this leads me to something I have been concerned about…
How do I manage my $500 a month dividend portfolio once I have enough stocks?
Okay. I understand.
Now we are talking about monitoring a dividend stock portfolio. After you have built it up.
You may have achieved the goal of $500 a month in dividends. Or, you are still working toward the goal. In either case, you feel like you have enough stocks.
To answer the question, there are two levels that I like to monitor. One, the individual stock holdings. Two, the overall portfolio.
First, for your stocks, ask yourself this question. Are the same conditions in place that led me to buy the stock in the first place?
If they are. Continue to hold.
If they are not. Reevaluate the stock based on your criteria.
Consider selling the stock. When your review suggests it is no longer appropriate for your portfolio.
Second, for your entire portfolio, make sure no one stock gets to be too large.
Thus keep the stocks of relatively equal value. So no one company runs into financial difficulty.
And ruins your dividend stock portfolio. With a falling stock price. Or a dividend reduction.
Next question, please. Yes, the gentlemen next to the windows. You are up…
Tom, there is a topic you didn’t mention. I couldn’t find it anywhere in the 5 step plan for making $500 a month in dividends.
Leading me to ask you a series of questions about the tax implications of dividend income…
Do I have to pay taxes on my dividend income?
Yes. Dividend income is taxable.
Both at the federal level. And often at the state level too.
The amount will depend on your specific tax situation. And what state you live in.
So, I can’t tell you what your exact tax rate will be. And suggest you speak with your tax advisor.
Then, with that knowledge in hand. You may need to build a bigger dividend portfolio. To account for taxes.
And still, end up with $500 of dividends in your pocket each month. After paying taxes.
But, step 5 in the plan says to reinvest dividends. Does that change my tax situation…
Do you pay taxes on dividends even if you reinvest them?
What you are asking is if reinvested dividends are still taxable. Since you are not using the cash.
You are keeping it in your brokerage account. And reinvesting it immediately back into the stocks in your portfolio.
And unfortunately, the answer is yes. Dividends, even if they are reinvested, are considered taxable income.
No different than if you take the cash when received. And spend it.
Okay then. I have one more question about dividends and taxes…
Are there any ways to avoid paying taxes on dividends?
Yes. Buy and hold your dividend stocks in an Individual Retirement Account (IRA).
Depending on the type of IRA. Taxes on your dividend income will either be deferred. This would be a regular IRA.
Or, in the best case, taxes on your dividends will never be due. By holding them in what is known as a Roth IRA.
You can open an IRA account at M1 Finance. Doing so is a great way to save on taxes.
It looks like there are a few more questions. And I won’t stop until they are all answered.
Young lady, by the door. You are up…
I’m tired of working my 9-5 job. And want to achieve financial independence. Maybe even retire early.
So, my question is…
Can you live off dividends?
I have good news for you. The answer is yes.
My wife and I started living off dividends years ago. So, we are living proof.
Funny thing is, we both still work. But we work on things we like. With money from our jobs being a secondary objective.
Just like us, many people use dividend income to pay all of their living expenses. So, they can free up their time from work. And make their life exactly what they want it to be.
You can do it too. Most noteworthy, the 5 step plan for making $500 a month in dividends still applies. With one exception.
Instead of generating $500 per month in dividends. You have to set your own unique monthly dividend income number. Your unique number will depend on your monthly expenses.
Maybe it’s $100,00 a year in dividend income. I don’t know. Just a number I picked.
So, to live off dividends. First, determine how much dividend income you need each month. To cover your expenses.
Then work through the same steps in the plan.
The amount of investment required will be different. Since you will want to make more dividend income. Dependent on your monthly expenses.
I see another incoming question…
Can I get rich off dividends?
Yes. Anyone can get rich off dividends. But, not everyone can or will.
Because it takes time, patience, self-discipline, and the ability to live below one’s means.
Let’s face it, not everyone can or will choose to behave like that.
Next question, please…
Okay. I have learned a lot from this article. But I haven’t invested before and I am nervous about it.
So, my question is this…
Can I lose money investing in dividend stocks?
Yes. By investing money in the stock market, you are putting your money at risk.
Because stocks do go down. Sometimes by a lot. Creating the potential for investment losses.
But history is on our side. Because over the long run, the stock market has always recovered.
Then goes on to make new highs. Taking our dividend stocks along for the ride higher.
To minimize your risk, do these things:
- Hold a diversified portfolio of stocks
- Invest new money for the long-term (at least 5 years)
- Don’t panic and sell during a bear market
- Invest small amounts regularly
- Pick the best dividend stocks
Dividend stock investors that do these practices. Rarely (if ever), lose money with dividend stocks in the long run. But, of course, I can make no guarantees.
I see another question. Coming from the back of the room.
Yes. Please go ahead…
My brother told me dividend stocks are stupid. He invests all his money in cryptocurrencies. And says I should too.
So, I want to ask you this…
Are there better investment strategies rather than dividend stocks?
Well, on one hand, your brother is right. There are many different strategies that an investor can pursue.
On the other hand, your brother may not be seeing the bigger picture. Because your investment strategy should be aligned with your financial goals. And your risk tolerance.
So, one strategy is not better than the other. All investment strategies have pros and cons.
It is a matter of picking the right investment strategy for your situation.
In other words, what is stupid for your brother. Might be perfect for you and me. And vice versa.
So, think about it this way. Dividend investing and dividend growth stocks are best for people who:
- Want to participate in the stock market
- Understand that stocks go up AND down
- Desire current dividend income today
- Require growth of income from future dividend increases
- Want to benefit from increases in share prices
- Have a long-term horizon
- Desire a less speculative investment strategy
Okay. That seems to have answered all of the questions in the room.
And some excellent questions they were!
Allow me to recap and summarize your 5 steps to making $500 off dividends. To wrap this up…
How To Make $500 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
More Reading About Dividend Investing For Monthly Dividend Payments
- Dividends Don’t Lie Book Review
- The Little Book Of Big Dividends
- Utility Forecaster Investment Newsletter Review
More For Your Monthly Dividends Toolkit
I referenced several tools and resources throughout the article. Many of which I have used for making money, saving money, and creating my own income portfolio for monthly dividend payments.
Here they are summarized for your convenience.
Disclosure & Disclaimer: I am not a licensed investment adviser, financial adviser, or tax professional. And I am not providing you with individual investment advice, financial guidance, or tax counsel. Furthermore, this website’s only purpose is information & entertainment. And we are not liable for any losses suffered by any party because of information published on this blog.
I own all of the stocks mentioned in this article.