Who Wants To Make $100,000 Each Year In Dividends?
If you want to know how to make $100k in dividends. Then you have come to the right place.
Because here are my top tips for allowing most anyone to live off their dividends…
17 Tips For How To Make $100k A Year From Dividends
- Get started
- Develop a long-term mindset
- Determine your target dividend yield
- Factor in taxes
- Compute your required investment
- Identify dividend stocks for investment
- Develop a watch list
- Analyze the stocks on your watch list
- Pick your dividends stock for investment
- Determine the number of stocks in your portfolio
- Determine how much you can invest
- Invest regularly
- Reinvest all dividends
- Monitor your dividend stocks
- Monitor your dividend portfolio
- Never get discouraged
- Hit a $100K in dividends and go for more
Disclosure: At no cost to you, I may get commissions for purchases made through links in this post.
Next, let’s discuss each of these steps to making $100,000 a year in dividends from the stock market.
After you are done with this article, but before you go, I suggest digging into our…
Dividend Investing Posts and Article Archives
Now on to our tips.
Starting with some foundational knowledge for earning $100k per year off dividends…
Get Started
Making $100,000 in dividends takes a long time. If you have already begun, congratulations.
If you haven’t started yet. Then, start now.
To begin making some dividend income right away. No matter how small.
Develop A Long-Term Mindset
Anything that takes a long time requires a long-term mindset. And investing in dividend stocks is no different.
Think of it this way…
To make $100k in dividend payments, consider it a journey. Not a destination.
And in my opinion, your journey to $100,000 in dividends will be worth it!
Determine Your Target Dividend Yield
One of the most important dividend metrics you will want to understand is the dividend yield.
Simply put, the dividend yield is the annual amount of dividends paid per share of stock. Divided by the stock price per share.
Higher dividend yields are neither good nor bad. But higher yields indicate greater investment risk, slower company profit growth, or both.
So, I would suggest sticking with somewhere between 2% and 6%. In my opinion, this will lead you to stocks that have good dividend yields.
Factor In Income Taxes
Unless you will be holding your dividend stocks in an Individual Retirement Account (IRA). You will have to pay income taxes on your dividends.
Paying taxes is a fact. No matter if you receive your dividends in cash. Or, reinvest them automatically back into the stock that paid them.
Under the tax law at the time of this article. Most people will pay a 15% dividend tax rate.
However, everyone’s tax situation is different. So, I recommend consulting with your professional tax advisor.
Next, one of the most fun tips. Buckle up for this one…
Compute Your Required Investment To Make $100K In Dividends
After you set a target dividend yield. And factor in your dividend tax rate.
You are in a position to understand the amount of investment required to make $100k in dividends.
Here’s an example…
First of all, let’s say you target an average portfolio dividend yield of 5%. And you pay the 15% dividend tax rate. Leaving you 85% of the dividend after tax.
This leaves you with a 4.25% after-tax dividend yield (calculated as 5% multiplied by 85%).
Using these assumptions, $100,000 per year in dividends will require a dividend portfolio with a market value of $2,352,941.
Yeah. That’s a lot of money.
So, this is where the first two tips come into play.
- Get started dividend investing today
- Develop a long-term mindset
But here’s some good news. Your out-of-pocket investment in dividend stocks will be much less.
Here’s why…
Dividend Growth And Making $100k In Dividends
First, some or all of your dividend stocks will increase their dividend rates regularly. Known as dividend growth stocks.
So, your dividends grow without any investment on your part.
Dividend Reinvestment And Making $100k From Dividends
Second, shortly after buying your first dividend stock. You will start receiving dividend income
Assuming you reinvest the dividends received. You will make dividends off the dividends you reinvest.
Once again, no out-of-pocket investing is required when reinvesting dividends.
Capital Gains And Making $100K With Dividends
Third, over time, your stocks will increase in value. Also called capital gains.
As you move forward, you will learn dividends and capital gains are a powerful combination. For increasing your investment returns.
Capital gains allow you to swap portfolio holdings. Selling dividend stocks with lower dividend yields. And replacing them with higher yields. If and when you choose to do so.
Thus, more dividend income. Without more investment.
Next, it’s time for the investment research phase for making $100,000 in dividends…
Identify Dividend Stocks For Investment
And the first research step is to find stocks that pay dividends. Fortunately, there are plenty of sources.
Here are a few suggestions…
Dividend Aristocats. A group of stocks in the S&P 500 stock index have increased their dividends for at least 25 years in a row.
Dividend rich industries and sectors. Dividend-paying companies are clustered in specific industries. For example, electric utilities and real estate investment trusts (REITs).
Dividend-focused mutual funds and ETFs. Check out the holdings in popular funds and ETFs for ideas.
Investment services. The Simply Investing Report & Analysis Platform is a good example. I have used it for many years.
Dividend stock screeners. There is no shortage of online tools. That screen for dividend-paying stocks.
Next, it’s time to narrow down the potential investment options…
Develop A Watch List
From the dividend stocks that you have identified. Select 20 or so that you are most interested in.
This becomes your dividend stock watch list. These are the stocks you are going to put some time into further research.
Analyze The Stocks On Your Watch List
A lot goes into selecting dividend stocks for investment. However, to make $100k in dividends, some items are more important than others.
I suggest focusing on:
Dividend yield. It should be consistent with your dividend yield target set earlier.
Dividend history. Understand the length of time a company has paid recurring dividends. A longer history is better.
Dividend growth. How often and by how much has the company increased its dividend rate.
Once again, a long history is a good sign.
Also, fast dividend growth is nice. But it can sometimes come at the expense of enough dividend yield.
Dividend payout ratio. The value of financial resources (earnings and/or cash flow) the company commits to dividend payments.
Lower is generally better in this case. But, high payout ratios can be acceptable in certain industries. And with specific companies.
Dividend stock valuation. Dividend stocks rarely go on sale. But you don’t want to significantly overpay. So, keep an eye on stock valuation.
With that stock research completed…
Pick Your Dividend Stocks For Investment
Transform your dividend stock watch list into a target buy list. After removing the stocks that no longer meet your requirements.
First of all, your target buy list represents the stocks you want to buy and hold in your dividend portfolio. Furthermore, it should indicate the price at which you are comfortable investing in them.
If you are uncertain, you can turn to investment advisory services to help identify the best stocks.
The Motley Fool Stock Advisor is a good choice here. For dividend stock recommendations delivered to your inbox every month.
Determine The Number Of Stocks In Your Portfolio
Furthermore, your target buy list should have enough stocks on it. To fill out your dividend portfolio.
But how many dividend stocks in a portfolio are enough?
Well, it depends on your specific circumstances. But 25 is a good starting point to consider.
With less than 25 stocks, there may not be enough diversification.
However, by holding more than 25 stocks. Then you may not be able to adequately monitor all of them.
Now, it’s time to execute your plan for how to make $100k per year with dividends…
Determine How Much You Can invest
If you don’t have a monthly budget. Then prepare one. It is a good personal finance habit to establish.
Personal Capital is a great free tool. For managing your spending, preparing your budget, and monitoring your investments all in one place.
The goal is to figure out how much you can save after paying your monthly expenses. For investing in shares of dividend stocks.
Come up with every extra dollar you can. Since every little bit helps.
Just a suggestion…
We use the online cashback app from Rakuten. For cashback on all of our online purchases.
It’s a small saving. But when it comes to money, small things turn into big things with time.
Invest Regularly
Using your target buy list, invest in the dividend stocks of your choice. And buy those dividend stocks regularly.
I suggest monthly. Coinciding with your monthly budget. And the excess of income over expenses you came up with in the last step.
Sometimes stock prices will be high. Sometimes low. But don’t let that deter you.
Consistency is key. Just choose the stock or stocks that appear to be the best value at the time.
Use your stock research to guide your decisions. That’s why you did it.
Of course, you will need a brokerage account to invest in stocks. And as a do-it-yourself dividend investor, never pay commission on your stock trades.
I like and use the Webull app. It’s easy to sign up. And free to buy and sell stocks.
Reinvest All Dividends
As time passes, you will be receiving more and more dividends. Along your successful journey to $100,000 per year in dividend income.
So, ask your stock broker to automatically reinvest the dividends. Right back into the stock that paid them.
Or, do lump sum reinvestment by letting them accumulate in cash. And add that cash to your monthly investment routine that you now have established.
Making the right choices with dividend reinvestment is one of the critical components. When it comes to snowballing your dividend wealth.
Monitor Your Dividend Stocks
Remember that each stock you hold in your portfolio, you bought for a reason. Those reasons were established as part of your research. And why a stock made it to your target buy list in the first place.
Therefore, a couple of times per year, review every stock you own. Ask yourself if you would still buy it again today.
If not, the stock should be considered a possible sale candidate. And replaced by another stock from your target buy list.
Monitor Your Dividend Portfolio
Time and stock market fluctuations will tend to throw off your allocation to individual stocks within your dividend portfolio.
What you want to guard against here is one or more stocks becoming too large. Thus, threatening your overall portfolio diversification.
This is usually a good problem to have. Since it indicates some of your stock picks have dramatically increased in value.
So, use it as an opportunity to harvest some capital gains. And reinvest the proceeds in one or more stocks with higher dividend yields.
Okay. We are coming down the home stretch.
A couple of more tips as you grow weary from the long journey to $100k made from dividends. Then I will wrap it up.
Never Get Discouraged
Yes. At times, the stock market will go down. Sometimes by a lot. Creating losses in your dividend portfolio.
And yes. Not all of the stocks you invest in will do well. It happens to the best dividend investors.
I will admit to making plenty of my own dividend-investing mistakes over the years!
Just understand that if you do your research. You will get many more stock picks right than wrong.
Also, realize the stock market has always gone on to make new highs. Even after the worst of bear markets. Thus, taking your dividend stocks to new highs too.
So, stay the course. And play the long game. You will be glad you did when you are living off your dividend income.
Hit $100K In Dividends And Go For More
Finally, remember this after you are making $100,000 of passive income from dividends…
There are no limits to how many dividends you can make.
Be smart. Stick in the dividend investing game long enough. And you might be surprised at your earnings potential.
Maybe you can become wealthy. By building a million-dollar dividend portfolio.
That’s all. Allow me a few parting thoughts…
How to Make $100k a Year from Dividends
Anyone can make $100K per year off dividends. It’s not hard, but it takes time and self-discipline.
So, put these tips into practice. It’s the fastest way to live off dividends that I know of…
- Get started
- Develop a long-term mindset
- Determine your target dividend yield
- Factor in taxes
- Compute your required investment
- Identify dividend stocks for investment
- Develop a watch list
- Analyze the stocks on your watch list
- Pick your dividends stock for investment
- Determine the number of stocks in your portfolio
- Determine how much you can invest
- Invest regularly
- Reinvest all dividends
- Monitor your dividend stocks
- Monitor your dividend portfolio
- Never get discouraged
- Hit a $100K in dividends and go for more
Finally, knowledge is power. So, check out all of our…
Dividend posts, articles, and guides
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.