How to Make $5,000 a Month in Dividends (7 step plan)

Build A Monthly Dividend Portfolio For Regular Income

Today I would like to discuss how to make $5,000 a month in dividends.

That’s a lot of money from dividends. No doubt. But I like setting tough goals. And perhaps you do as well?

So, if making money off dividends interests you. Then stick around for a few minutes.

While we go step by step for achieving the goal of $5,000 a month in dividend income.

Let’s get started…

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Disclosure: At no cost to you, I may get commissions for purchases made through links in this post.

How To Make $5000 A Month In Dividends In 7 Easy Steps

To earn $5,000 in monthly dividends, I suggest these 7 steps:

  1. Develop a long term perspective
  2. Determine how much you can allocate for investment
  3. Select dividend stocks that are consistent with your strategy
  4. Invest in your selected dividend stocks regularly
  5. Keep investment costs and trading to a minimum
  6. Reinvest all dividends received
  7. Periodically monitor progress and adjust accordingly

That’s today’s dividend income investment process. For making the passive income, we all crave.

Next, let’s discuss each step on the list.

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1. Develop A Long Term Perspective

A little later in this article, you are going to find out it takes quite a bit of money. To make $5,000 in dividends every month.

And, I do not want that to discourage anyone. So, here is a good idea going into this.

It is to develop and maintain a long-term perspective.

Because by having patience and investing for the long-term. Also, sticking with a consistent investment strategy.

You will have mastered the most important aspects. For making good money from dividend investing.

Thus, remember this phrase…

“Dividend investing is a journey, not a destination”.

Think about it and repeat it to yourself often.

Next up, step 2. In our plan to get $5,000 from dividends every month.

2. Determine How Much You Can Allocate For Investment

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Since you are reading this article. Chances are you do not have the money sitting around. That is necessary to earn $5,000 in dividends today.

If you do, congratulations. But for the rest of us, read on…

Because you will need to determine how much you can invest regularly into dividend stocks.

For this, I suggest developing (or fine-tuning) your monthly budget. Also known as a personal cash flow statement.

Your budget simply itemizes the amount and sources of your cash coming in. Probably from your job or business.

But it excludes your dividend income portfolio. And the cash flow it generates from dividends.

In addition, your budget should list the value of all of your expenses.

I suggest using a monthly time interval for your budget. Since most of us have expenses that get billed monthly.

As a result, money coming in. Less money going out. Equals your amount available to invest in dividend stocks.

One of the best tools for creating and maintaining a budget is Personal Capital. It’s free to sign up and use. And makes managing your money much less of a chore.

Okay. Simple enough so far. Right?

Yes. Of course.

That means we are ready and willing for step 3. In our plan for $5,000 in monthly dividend payments.

3. Select Dividend Stocks That Are Consistent With Your Strategy

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I could write an entire article about selecting dividend stocks. But that’s not the goal for today.

So, at a high level. I’d like to discuss dividend investing strategies.

Because most dividend investors focus on one of three stock selection strategies. That influences the dividend stocks they pick for investment.

Here they are…

First, some investors choose dividend stocks with a high target dividend yield.

Or second, some select dividend stocks with a strong track record for dividend growth.

And third, many implement a blended strategy. Involving both of the first two approaches.

Let’s discuss each of these three a bit more…

High Dividend Yield Stocks

The advantage of higher dividend yields. And the stocks that pay them. Is that you earn more dividends right now.

This by itself can reduce the exact amount of investment required to make $5,000 per month in dividends.

On the other hand, higher divider yield stocks indicate greater investment risk. Specifically, that the high dividend payout may not be sustained over the long term.

In addition, high dividend yield stocks normally have slow dividend growth rates. Because company management may increase the dividend infrequently. Or, not at all.

Stocks With Strong Histories Of Dividend Growth

Conversely, some dividend investors prefer dividend growth stocks. They are stocks of companies that increase their dividends per share. Usually on an annual basis.

Many of them are known as Dividend Aristocrats. They are stocks trading in the S&P 500 index.

And have increased their dividend rate annually. For at least 25 years.

Blending Each Approach For Selecting Dividend Stocks

But realize, these two strategies are not mutually exclusive. In reality, most dividend investors use elements of both approaches when choosing dividend stocks.

Picking some for their higher dividend yield. And others for their rapid dividend growth rates.

And this is what you will find. As a rule of thumb, dividend yield and dividend growth are inversely related.

Meaning high dividend-yield stocks increase their dividends slowly. While low dividend yield stocks have faster dividend growth rates.

Still not sure which dividend stocks to select? Then I suggest the Simply Investing Report.

Because Simply Investing researches and follows hundreds of the best dividend stocks from the United States and Canada.

Then, using rigorous criteria. Simply investing suggests the best dividend stocks to buy.

And delivers those recommendations to your inbox each month. So you can act upon them.

This brings us to step 4 in our plan for $5,000 from dividends every month.

4. Invest In Your Selected Dividend Stocks Regularly

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By completing your monthly cash flow statement in step 2. You know exactly how much you can afford to invest in dividend stocks each month.

So, I suggest you set up an automatic monthly transfer. From your primary bank account. Into your brokerage account. Where you will buy and sell your dividend stocks.

By doing this, you will not be tempted to spend the money. Before investing.

And knowing that transfer will happen automatically each month. Provides additional discipline to stick to your monthly expense budget.

Then, with that fresh capital in your brokerage account. Purchase the company stock (or stocks) of your choosing. Based on our discussion from step 3.

Investing every month. No matter the situation. Might be the most important step in the plan for making $5,000 off dividends.

Because by investing every month. Through thick and thin. You take advantage of the fluctuations in stock prices.

Most importantly, continuing to invest when stock prices go down. Because that’s when you will be getting the most value. And the highest dividend yields for your investment dollars.

Dividend investing when stock prices go down is easier said than done. But investing regularly is critical.

Next up, step 5 of the sequence for getting $5,000 of dividends every month.

5. Keep Investment Costs And Trading To A Minimum

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Fortunately, in this day and age. Investing in stocks has become very inexpensive.

Long gone are the days of getting on the phone. Talking live to a stockbroker. And paying hundreds of dollars in commission just to buy a stock.

It almost seems laughable now.

So, be sure to trade your dividend stocks for free. For that, I like and use the Webull app.

Not only are stock trades completely free. Webull has powerful research and notification capabilities.

Allowing you to surface the best dividend stocks. And alerting you when the time is right to buy them. Based on any criteria you choose.

But, I want to caution you.

Just because it costs nothing to buy and sell your shares. And you can do so from the comfort of your couch. By using the Webull app that is fired up on your smartphone.

I say, resist the urge.

Because dividend investing to make $5,000 a month is not a stock trading strategy.

Thus, identify and buy the best dividend stocks. Then hold them for the long-term. While you collect your dividends.

That doesn’t mean you will never sell a stock. Not at all.

Just make those sell decisions wisely and sparingly. I will have more on that topic in a moment.

Ready or not. It’s time for step 6.

Representing another important aspect of monthly dividend portfolio building…

6. Reinvest All Dividends Received

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Shortly after buying your first dividend stock. Monthly income from dividends will start to roll into your Webull brokerage account.

It might not be much. Perhaps $100 a month from your dividend stocks. Even less when you first get started.

So, the obvious question becomes: what should I do with the dividends I receive?

In short, I suggest you reinvest dividends back into your stocks. Held in your dividend portfolio.

Option 1: Automatically Reinvest For $5,000 A Month In Dividends

And you have two ways to think about dividend reinvestment

First, simply instruct your stockbroker to auto reinvest.

In this way each dividend you receive. Will be immediately and automatically invested right back into the stock that paid it.

Option 2: Lump-Sum Reinvest For $5,000 A Month In Dividends

With option 2, allow your dividends to accumulate in cash.

Then, when you have enough cash available. Choose the stock or stocks to invest that cash in. To reinvest your dividends.

You can wait until the end of the month. And after your direct deposit from your primary bank account is moved to your brokerage account.

At that time, invest both the dividends received. And the fresh capital.

Auto Or Lump-Sum Dividend Reinvestment: Which Is Better?

I think either approach to dividend reinvestment is fine. And I have used both during my investing lifetime.

The most important thing is to not spend your dividends. Reinvest them!

And last but not least, step 7 in how to make $5k a month in dividends…

7. Periodically Monitor Progress And Adjust Accordingly

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If you have selected high-quality dividend stocks. Your monitoring process won’t consume much time.

But two things at a minimum should be reviewed. At least once per year. Perhaps twice a year.

First, at a portfolio level. Make sure no one stock has gotten too big. And represents too much of your portfolio value.

I use 5% as a rule of thumb. So, when any single stock becomes greater than 5% of the total portfolio.

I look to sell some shares. And reinvest the proceeds in another stock.

Second, at an individual dividend stock level. Make sure the reasons you bought the stock in the first place. Are still valid.

It is especially important to make sure that none of the companies you own. Are experiencing long-term financial difficulties. That could limit their ability to sustain the dividend into the future.

Okay. That’s all 7 steps in our dividend income plan.

But, don’t go. I have a little more to share…

FAQs About Making $5,000 A Month In Dividends

Allow me to address a few frequently asked questions (FAQs). To help you on your way. Then, I will wrap up.

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How Much Do I Need To Invest To Make $5,000 A Month In Dividends?

First of all, the amount of investment required depends on the overall dividend yield of your dividend stock portfolio.

Furthermore, it is realistic to expect a portfolio dividend yield to range between 3% and 5%. Although it could be more or less. Depending on the stocks you decide to buy. And how they perform.

Because portfolio yield is a function of two things:

  1. The dividend yield of each stock held
  2. The weighting of each stock’s value in the portfolio

Thus, choosing high-dividend yield stocks. And increasing their weight in the portfolio. Will increase the portfolio’s dividend yield. And, vice versa.

Here is a table to help you determine how much is needed to make $5,000 A Month In Dividends:

Table 1: Amount Needed To Make $5,000 A Month In Dividends

Portfolio YieldInvestment Required

Yes. I know. It’s a lot of money. But remember what I said in step 1. “Dividend investing is a journey with no limits, not a destination”.

And, if it makes you feel any better. Your actual out-of-pocket investment will be much less. Versus the values shown in the table.

How can that be?

It is because of three things:

  • Reinvesting your dividends
  • Dividend rate increases from your stocks
  • Increases in your stock’s share prices

These items compound your dividend wealth. And help you get to the amount of investment required to make $5,000 in dividends.

Thus, making your contribution total much less than the investment’s required market value.

How Many Dividend Stocks Should I Own To Make $5,000 A Month In Dividends?

There is no one exact answer to this question: exactly how many stocks do I need to own?

Academic research suggests 20-30 stocks are adequate.

Less than 20 and there is too much individual stock risk. And too little diversification.

More than 30. Then you have diminishing benefits from diversification.

I would land at the higher end of this range. Maybe even a few more than 30 stocks.

Especially as the portfolio gets closer to the goal of $5,000 per month. Because we are talking at least $1 million invested in dividend stocks.

Furthermore, make sure the stocks in the portfolio are diversified. Representing a variety of stock market sectors and industries.

Typical industries that pay dividends include:

  • Health care
  • Pharmaceuticals
  • Utilities
  • Real Estate Investment Trusts
  • Consumer staples
  • Industrials

Most, if not all, should be represented in your portfolio.

Should I Worry About When Each Stock Pays Its Dividends?

In the early going, I wouldn’t worry too much about when each stock pays dividends.

Focus on selecting the best dividend stocks. No matter when they pay.

As your portfolio matures. And it gets closer to the $5,000 monthly goal. And assuming you will require close to $5,000 each month for living expenses.

Then you can start taking a look at your portfolio’s payment pattern. And the stock’s driving it.

Add fresh capital and reinvest dividends. And do so into stocks that pay during the months where your dividend cash flows are lower than you require.

That’s when dividend payment patterns become important. So, you should know…

In the U.S. some stocks pay monthly dividends. But most, pay quarterly.

Following these quarterly dividend payment patterns.

  • January, April, July, and October
  • February, May, August, and November
  • March, June, September, and December

To sum up, I wouldn’t obsess over the timing of future dividend payments. Especially early in your journey.

Take a closer look at it. Say, when you get to the halfway point. Of attaining the goal of $5K in monthly cash dividends.

Can I Retire On Dividends Of $5,000 Per Month?

Many people can retire on $5,000 a month in dividends.

Since the average household income in the U.S. is about $70,000.

So, $60,000 in annual dividend income. In addition to other forms of retirement income. Would make for a nice retirement plan.

But you can answer this question for yourself. And base it on your unique circumstances.

Just go back to step 2 and look at your monthly budget. That you prepared using Personal Capital.

Take your monthly expenses and make any adjustments necessary. To reflect what your expenses will look like in retirement. And don’t forget to take into account income taxes.

If your living expenses are less than $5,000 a month. Or, $60,000 annually. Then, I would say yes. You have an opportunity to retire on dividends.

So, don’t waste that opportunity. Earn your financial freedom.

Just follow the 7 step plan for making $5,000 a month in dividends.

That’s all I have. Allow me to wrap up with a summary…

How To Make $5,000 A Month In Dividends

Here’s our 7 step plan to achieve $5,000 in monthly dividend payments:

  1. Develop a long term perspective
  2. Determine how much you can allocate for investment
  3. Select dividend stocks that are consistent with your strategy
  4. Invest in your selected dividend stocks regularly
  5. Keep investment costs and trading to a minimum
  6. Reinvest all dividends received
  7. Periodically monitor progress and adjust accordingly

Most importantly, enjoy your journey! And the monthly dividend income that comes with it.

More Reading About Making Money Off Dividends

My Favorite Resources For Making Money With Dividend Stocks

Make sure you have the right tools for the right job. Here are a few of my favorite tools and tips that have helped me along my dividend investing journey.

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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.

How to Make $5,000 a Month in Dividends In 7 Easy Steps