How to Make Money from Dividends: 7 Ways to Profit

Collecting Dividends From Stocks Is Easier Than You Think

Today we have one of my favorite topics: how to make money from dividends! Since all of us can use a little extra cash.

So, I want to discuss some of my top ways to earn dividends. From the most basic dividend investing tips. To dividend strategies that are a little more advanced.

So, let’s not delay.  Because it’s time to get dividends today!

how to make money from dividends

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

How To Make Money From Dividends: Your 7 Step Plan

7 top ways to make money with dividends include:

  1. Invest in stocks that pay dividends
  2. Reinvest all dividends received
  3. Invest for higher dividend yields
  4. Invest for dividend growth
  5. Swap portfolio holdings
  6. Sell portfolio holdings for homemade dividends
  7. Minimize income taxes

First, we will dive into these 7 ways to earn dividends.

Then, I will address an important question: How much money can you make from dividends?

That’s our agenda. So, let’s learn how to make money from dividends…

7 steps to make money from dividends

1. Invest In Stocks That Pay Dividends

The first way of earning dividends may seem obvious. And, it is.

To make money from stock dividends. You need to invest in dividend stocks.

Have you heard the expression, “you can’t win if you don’t play the game”? So, get in the dividend investing game. And, play to win.

Furthermore, adding new money to your best dividend-paying stocks is the most basic way to make more dividends.

Here are some things to think about. To start finding dividend stocks and adding money to them.

Find Dividend Stocks To Make Money From Dividends

You can find dividend stocks in several places:

  • Lists of the best dividend growth stocks
  • Dividend rich industries and sectors
  • Specialty dividend investing websites
  • Dividend focused mutual funds ETFs
  • Investment newsletters
  • Products and services you use regularly
  • Dividend stock screeners

Select Good Dividend To Make Money From Dividends

Then, it’s a good idea to fully understand the stocks you intend to buy.

Here are some of the things I like to look at. When analyzing and selecting dividend stocks:

  • Understand how the company makes money
  • Determine the forward annual dividend yield
  • Review historical dividend growth
  • Calculate the dividend payout ratio
  • Evaluate the company’s financial position
  • Assess dividend safety
  • Review the stock valuation

If you are new to dividend investing. And these terms are unfamiliar. Do not stress about choosing dividend stocks.

Because you can check out this comprehensive guide about how dividends work. And level up your knowledge about dividend investing.

On the other hand, maybe you do not have the time to find and select dividend stocks? Then, to make money with dividends…

Consider Dividend Funds Or Stock Recommendation Services

There are plenty of great mutual funds. And exchange-traded funds that hold dividend stocks.

They do the work of finding and selecting the best companies to own. On your behalf.

Or consider stock advisory services. That covers the dividend investing space.

Let them do the work. So you don’t have to. But you can still own individual dividend stocks based on their recommendations.

For example, the Simply Investing report delivers dividend stock recommendations to my inbox every month. Based on its coverage of more than 200 dividend stocks located in the U.S. and Canada.

Furthermore, consider the Motley Fool Stock Advisor. It has a long history of successful stock-picking performance.

And, the Fool’s stock picks go beyond dividend payers. Venturing into higher growth sectors of the stock market.

Either way, it’s hard to go wrong with The Simply Investing Report. Or, Motley Fool stock advisor.

To sum up, here is the first way to make money off dividends…

Add Money Regularly To Your Stocks To Make Money From Dividends

Pick your dividend stocks. Then buy more shares regularly. To build out a dividend stock portfolio.

Want a stock’s next dividend payment? Be sure to make your purchase before its ex-dividend date.

Otherwise, just buy and hold. To receive every dividend the companies you own approve and pay going forward.

Furthermore, keep your transaction costs low. By trading commission-free. For this, I like and use the Webull app.

Plus, Webull offers great research capabilities. To help you find good dividend stocks.

And best of all? Webull is free to use. So, sign up and trade stocks with Webull.

Then, once you have one or more dividend stocks. You can start benefiting from the second way to make money from dividends…

2. Reinvest All Dividends Received

This is a simple strategy for profiting from dividends. But, such an important one.

Because you can start to snowball your dividend wealth. By re-investing all dividends received. Back into the dividend stocks you own.

In other words, make more dividends. From your dividends.

Instead of having to put your own money up to buy more shares. This way, you are playing on “house money”.

Either reinvest dividends automatically back into the stock that paid them. You can tell your stockbroker to do so.

Or, allow your dividends to accumulate in cash. And reinvest lump sum. Into 1 or more dividend stocks of your choosing. By manually buying more dividend stock shares.

Next up, earn money from dividends this way…

3. Invest For Higher Dividend Yields

how to make money with dividend stocks

A stock’s dividend yield dictates the value of annual dividends received. Based on the amount of your investment.

For example, invest $500 in a stock with a 3% dividend yield. And you can expect to make $15 per year in dividends. Calculated as: $500 multiplied by 3%.

As you invest in higher dividend yield stocks. You make more dividend income. It’s that simple.

For example, put that same $500 in a stock with a 5% dividend yield. Then make $25 a year off dividends.

But, here is a word of caution. Because higher dividend yields usually indicate greater investment risk.

Specifically, that the dividend could be reduced. Or suspended by the company, in the future.

Next up, to collect dividends, think about this option…

4. Invest For Dividend Growth

Implement a dividend growth investment strategy. This is another way to make more money from dividends.

It means investing in dividend stocks with a track record of increasing their dividends per share. These stocks do so regularly. Usually once a year.

I call it organic dividend growth. And, it is another way to snowball your passive income from dividends.

Just buy stocks with a solid history of dividend growth. Then sit back and earn more money from dividends every year. Without investing another penny.

Now think about the last 2 ways we discussed to make money from dividends.

First, higher dividend yields mean more dividends today. Second, higher dividend growth means more dividends in the future.

Before we go on. Let’s summarize what we have covered thus far…

You have gotten your start dividend investing. And have built a dividend stock portfolio consisting of several individual stocks and funds.

And have done so by adding new funds regularly to your stocks. Plus, reinvesting all dividends.

You are benefiting from higher dividend yields. And, from dividend growth. Your dividends are starting to roll in.

So, it’s time for the 5th way to make money on dividends…

5. Swap Portfolio Holdings

As time passes, the prices of some of your stocks will do better than others. And some of your dividend-paying companies will raise their dividend rates faster than others.

These changing conditions create opportunities. To swap out current portfolio holdings with new ones. Or, take money from one stock you own and add it to another.

What’s the goal? To increase your overall portfolio’s dividend yield, dividend growth rate, or both.

Realize that there are tradeoffs with every move you make. But, there is no need to sit on your hands.

Always be on the lookout for opportunities. To better optimize your dividend stock portfolio.

Then you are ready for the 6th way to make good money with dividends…

6. Sell Portfolio Holdings For Homemade Dividends

You do not always have to wait for a company to pay a dividend. To make money from dividends.

Because you can sell shares of your dividend stocks. Converting the stock to cash. For making money from dividends.

It is typically done with stocks in your portfolio that have increased in value. By a large amount.

This strategy for earning dividends has a name. It is called creating or generating homemade dividends.

And, just like the traditional cash dividends you receive. It’s best to reinvest these homemade dividends.

You can do so back into other shares of stock in your portfolio. Or, a new stock you want to add.

Homemade dividends are a great way to keep your dividend income portfolio holdings balanced. By not letting any individual stock become too large a piece of the total pie.

Last but not least. Here’s another way to get more money from dividends…

7. Minimize Income Taxes

make money with dividends

Everyone’s tax situation is different. But, if you are making money from dividends income taxes may be due.

Income taxes? Yes, they are one of the disadvantages of receiving dividends.

But, what is one of the best ways to minimize or even eliminate taxes? And keep more of the money you make off dividends.

I suggest holding your dividend stocks in an Individual Retirement Account (IRA). Plus, you have the added benefit of saving for your future financial independence.

I bet it would be nice to have an IRA account. Generating monthly dividend payments. To supplement your other sources of income in retirement.

Have you been meaning to set up an IRA?  And start saving for retirement?

Then delay no longer.  Since M1 Finance has free of charge easy to open IRAs.

They have several convenient online options. For investing in dividend stocks.

Okay. That concludes our discussion. About 7 ways to make money from dividends.

But, I promised to answer another important question for you…

How Much Can You Make From Dividends?

How much investment for $1,000 a month

The answer to this question is quite simple. Anyone can make as much money as they want from dividends.

There is no limit to your potential dividend income!

But the amount “YOU“ can make from dividends will be limited by two things…

First, is the value of funds you commit to dividend stocks. Second, the dividend yield those funds generate.

I would like to show you a few examples.  But first, we need to make an assumption. About portfolio dividend yield.

Let’s assume an overall dividend portfolio yield range. From 2% to 6%. Your portfolio will have a specific dividend yield. Possibly within this range.

That’s why I want to use it. To give a range of outcomes. Then, you can do your calculation.

Here is the math for each example to come:

Amount of dividends per month multiplied by 12 months. This gives us an annual dividend income.

Annual dividend income is divided by the dividend portfolio yield. As I said, I’m going to use a target dividend yield range between 2% and 6%. This will give us a range for the amount to invest.

Again, the exact investment depends on your dividend portfolio’s average dividend yield. Which will depend on the specific dividend stocks you buy and hold.

But, these examples will give you a good idea of the amount of investment required. Here goes…

How Much Do I Need To Invest To Make $100 A Month In Dividends?

To make $100 in monthly dividends. You will need to invest between $20,000 and $60,000.

Consider this a good goal to target. For a beginning dividend investor.

How Much Do I Need To Invest To Make $200 A Month In Dividends?

To earn $200 a month from dividend payments. You will need to invest between $40,000 and $120,000.

If you have been at dividend investing for a while. This goal may feel more achievable. Versus a beginning investor.

How Much Do I Need To Invest To Make $500 A Month In Dividends?

To collect $500 off monthly dividends. You will need to invest between $100,000 and $300,000.

The investment required is getting big! That’s a lot of money for sure.

But, always remember this. Dividend investing is a journey, not a starting point. Nor, a destination.

No one has this amount of money just lying around. You have to save it. And build it over time.

And remember rule #1. Invest regularly in dividend stocks.

How Much Do I Need To Invest To Make $1,000 A Month In Dividends?

To get $1,000 a month in dividends. You will need to invest between $200,000 and $600,000.

Notice how reaching for higher dividend yields. 6% in the case of these examples. Lowers the investment required.

How Much Do I Need To Invest To Make $2,000 A Month In Dividends?

To profit from $2,000 a month in dividends. You will need to invest between $400,000 and $1,200,000.

Hitting $2,000 a month in dividends. Well, that is a dividend investing success story. And an awesome, but long journey to get rich with dividends.

Finally, don’t let the amount of investment required discourage you. Because every journey to make money from dividends starts with a first step!

Let’s wrap it up…

How To Make Money From Dividends: Your 7 Step Plan

7 good ways to make money with dividends include:

  1. Invest in stocks that pay dividends
  2. Reinvest all dividends received
  3. Invest for higher dividend yields
  4. Invest for dividend growth
  5. Swap portfolio holdings
  6. Sell portfolio holdings for homemade dividends
  7. Minimize income taxes

Now you know how to make money with dividend stocks. So, good luck with your dividend investing journey.

More Reading On How To Make Money From Dividends

My Favorite Resources To Make Money With Dividends

I mentioned several apps and resources throughout the article. To assist in building your dividend income to the level you desire.

They are summarized here for your convenience:

conclusions about how to earn dividend income

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.

How to Make Money From Dividends