When Making Money Off Dividends Is On Your Mind
One of the questions I frequently get from readers is: how much can you earn from dividends?
So, I’m here to provide an answer to this important question…
Exactly How Much Can You Earn From Dividends?
First, at the individual stock level, an investor earns dividends based on the stock’s dividend rate per share multiplied by the number of shares owned.
Second, and more importantly for this discussion…
At the dividend income portfolio level, an investor earns dividends in the same way. But, by investing in the shares of many different dividend stocks.
Thus, your dividend portfolio can make an unlimited amount of dividends.
To put it another way, the potential for earning dividends is infinite.
Because your earnings from a dividend portfolio are limited only by the number of shares of dividend stocks owned. Which depends on the amount of money you can invest.
And to the best of my knowledge, the amount of money you can invest in dividend-paying stocks is limitless!
Thus, your potential earnings from dividends are unlimited too!
Disclosure: At no cost to you, I may get commissions for purchases made through links in this post.
Important Assumption For How Much Money You Can Make Off Dividends
Finally, it is important to note, that my answer to the question is based on implementing a long-term dividend growth investing strategy.
Because I’m a lifelong dividend investor. With 40+ years of DIY dividend investing experience under my belt.
As a result, long-term and lifetime dividend investing is the only way I think about it. So, consider it an early retirement income strategy. For living off dividends.
On the other hand, if you are looking for a short-term get rich with dividends quickly scheme.
Hoping to make unlimited amounts of money. Unfortunately, I can’t help you!
Next, let’s dig into several details that support my answer to the question. Then, when you are done, but before you go, check out all of our…
How Stock Dividends Work
As I said in the answer to the question, an investor’s dividends come from a stock’s dividend rate per share multiplied by the number of shares owned.
So, let’s better understand exactly how dividends work…
First of all, companies are not required to pay dividends. But, when they do, management announces and declares a dividend rate per share.
Most companies pay dividends quarterly. Or, 4 times per year.
Then by taking the quarterly dividend rate and multiplying it by four. You get the company’s annual forward dividend.
Multiply the forward dividend by the number of shares you own. And that’s how much money you are making off dividends from one stock.
Furthermore, divide the forward dividend by the stock price. Then you get the amount of the stock’s dividend yield.
Example: Calculating Dividends Earned And Dividend Yield
For example, if a dividend-paying company like Johnson & Johnson declares a quarterly dividend of $1.10 per share. Assuming you own 50 shares, then you will earn $220 per year in dividends.
$1.10 quarterly dividend multiplied by 4 dividends per year equals a $4.40 annual forward dividend.
$4.40 multiplied by your 50 shares equals $220 in dividends earned each year
Assuming J&J’s stock price is $150 per share. A $4.40 forward dividend, divided by $150 stock price gives us the stock’s dividend yield of 2.9%.
Thus, the value of dividends you can make from Johnson & Johnson is only limited by the number of shares you own.
Now, that’s I nice lesson on how dividends work for a single stock. But, we are after something bigger here.
Specifically, how much money you can make from dividends. Therefore, I have to assume you are going to own more than one dividend stock.
And that’s where your dividend portfolio comes into play.
Calculating Your Dividends Earned From Your Dividend Portfolio
In the initial answer to the question, I explained…
At the dividend portfolio level, an investor earns dividends in the same way as with a single stock. But, from many different dividend stocks.
So, for calculating the dividends earned from your entire portfolio. Just repeat the process I just described above for every stock you own.
But wait, there is an easier way…
Just go to your regular brokerage account where you invest and hold your dividend stocks.
Then do a search query for the last 12 months of dividend payments that you have received.
I use the Webull stock trading app. With Webull, stock trades are free. It’s easy to use. And the app has excellent research and stock trading capabilities.
Next, with all of the knowledge, let’s go back to the question of the day…
How Much Can You Earn From Dividends?
Putting it all together, I conclude that you can make an unlimited amount of dividends.
Because earnings from dividends are restricted only by the number of shares of dividend stocks owned. Which is only limited by the amount of money you have to invest.
As far as I know, the amount of money you can invest in dividend stocks is unlimited! Thus, the potential earnings from dividends are unlimited too!
Unlocking Your Potential For Making Dividends
Bringing me to my next point. For making as much in dividends as possible.
Since it comes down to this simple rule: invest more money, make more passive income from dividends.
Increasing Your Investments In Dividend Stocks
I only know of 2 ways to increase the number of dividend shares owned.
First, make more money than you spend. Also known as living below your means.
Then take the excess, and invest it in shares of dividend stocks.
Second, once you earn a reliable stream of dividends, implement what is known as dividend reinvestment.
To do so, you have two options.
First of all, you can direct your stockbroker to automatically reinvest all dividends received. Right back into the stock that paid them.
Or, you can let your dividends accumulate in cash. Then periodically, reinvest the cash lump sum in the dividend stocks of your choosing.
While there are pros and cons to your dividend reinvestment method. Either way is fine.
A Process For Investing In Dividend Stocks
So, you now know how much money you can make with dividends. Specifically, we know the amount is unlimited.
You also know reaching your potential is dependent on investing in more shares. This you can do by living below your means, investing the excess, and reinvesting all dividends received.
Next, here’s a process to follow. For building up your shares of dividend stocks.
Follow these steps and you will be making a monthly dividend income from a monthly dividend portfolio in no time at all.
Make Your Dividend Investing Plan
1. Develop a long-term perspective. I said it at the beginning and I will say it again…
Dividend investing is a long-term investment strategy. Not a get-rich-quick scheme.
2. Determine how much you can invest. Unlock your potential for making the most in dividends.
Make a budget. Spend less by living below your means. And put the excess in dividend stocks.
Select And Invest In Dividend Stocks
3. Select dividend stocks to invest in. I use the Simply Investing Report & Analysis Platform. For identifying the best dividend stocks. And for buying them at the right price.
Also, for choosing higher dividend yields. Average dividend yields. And lower ones too. For balancing out my dividend income portfolio.
4. Invest in your selected dividend stocks regularly. Make a habit of investing regularly.
I suggest doing so each month. This way you will take advantage of stock price fluctuations. Buying more shares when prices are low. When the stock market goes down. And vice versa.
And you should know by now, that the more shares you own. The more dividends you can make.
5. Eliminate trading costs. There is no need to pay for trading stocks. I trade stocks for free on Webull.
Manage Your Stocks, Dividends, And Portfolio
6. Reinvest all dividends received. Dividend reinvestment is an excellent way to accumulate more shares.
7. Monitor your stocks and portfolio. Finally, check on your stocks and the diversification of your dividend portfolio.
I recommend doing so at least a couple of times per year.
Look for stocks that no longer meet your investment criteria. And consider selling them.
Review your overall portfolio. To make sure no one stock has become too large a piece of the pie.
Consider trimming back large positions. Doing so will improve your portfolio diversification.
Okay. That’s it.
Follow these steps and you will be making $1,000 in dividends soon enough. Then more as you go.
Allow me to wrap up with a few parting thoughts.
How Much Can You Earn From Dividends?
Today’s question was: how much can you make from dividends?
And my answer is a lot because your possible earnings from dividends are unlimited.
Since making money from dividends is based on the number of shares of dividends stocks that you own. Furthermore, the number of shares you can own is limitless.
So, develop a long-term perspective. Live below your means. Invest in the right dividend-paying stocks at the right time.
Then you will be on your way to making a boundless amount off dividends.
Finally, just a reminder to check out…
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.