Your Questions Answered About A $1 Million Dividend Portfolio
Today’s article covers important things an investor should know about a million-dollar dividend portfolio.
To get us started, here are the answers to some of the most frequently asked questions…
5 Things You Need To Know About A Million Dollar Dividend Portfolio
- Most $1 million stock portfolios earn annual dividends of $30,000 to $50,000
- Some people can live off a $1 million dividend portfolio
- More people can retire off a million-dollar dividend portfolio
- It takes 20-30 years to build a $1,000,000 stock portfolio paying dividends
- Building your $1 million dividend portfolio is easier than you think
Next, I would like to cover these points about a dividend portfolio worth a million dollars in more detail.
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But now, back to today’s topic…
How Much Does A Million-Dollar Stock Portfolio Pay In Dividends?
First of all, a million-dollar dividend portfolio will typically pay between $30,000 and $50,000 in dividends each year. Or, between $2,500 and $4,167 in dividends per month.
This is because there are many quality stocks with good dividend yields between 3% and 5%. So, it’s likely a portfolio’s overall dividend yield will be in the same range.
However, the exact earnings will depend on the specific stocks held.
For example, $1,000,000 multiplied by a portfolio dividend yield of 4%. Gives us $40,000 in dividends paid per year.
Can You Live Off Dividends From A 1 Million Dollar Dividend Portfolio?
Unfortunately, most people are not able to live off dividends from a million dollars. Because the dividend income generated is not enough to replace a person’s work income.
Here is why I say this…
First, the median household income in the United States is approximately $67,000.
Second, we know from the discussion above, that it is reasonable to assume a million-dollar portfolio can earn $40,000 in dividends income.
Maybe a little more. Or, maybe less. We know it depends on the portfolio’s exact dividend yield.
Regardless, it doesn’t take a math expert. Because it is clear that an average U.S. household needs much more than $40,000 to maintain their living standards.
On the other hand, not everyone is average. Because by a combination of…
- Reduced living expenses
- Increased portfolio value
- Investing in stocks with higher dividend yields
Next, let’s continue with this line of thinking and talk about a dividend portfolio for retirement…
Can You Retire With A Million-Dollar Dividend Portfolio?
It is possible to retire on a $1,000,000 dividend portfolio. But doing so normally requires combining dividend income with other sources of retirement income.
First, the average retiree receives a social security income of more than $19,000 per year.
Second, let’s stretch for more dividend yield from our million-dollar stock portfolio. Shooting for an average 5% portfolio yield.
The combination of these two retirement income sources provides $69,000 in annual income. Made up of…
- Dividend income – $50,000
- Social Security income- $19,000
Thus, our household in this example is now earning the U.S. average. Also, as time marches on. It can be acceptable to sell stocks for additional spending money. Without worrying about outliving one’s assets.
As a result, I conclude it is possible to retire with a million-dollar portfolio making a very good dividend income.
On the other hand, it’s going to take some time to get there. Allow me to explain…
How Long Will It Take To Build A Million-Dollar Dividend Portfolio?
It takes between 20 and 30 years to build a $1 million dividend portfolio. Yes. It can be done faster. But to do so will take very aggressive savings and dividend investment plans.
Here’s how I come up with this range of time…
First, financial planners suggest saving 20% of one’s gross income. So, for our average household with an income of $68,000, that’s $13,600. Or, about $1,100 per month.
Assuming a 10% total return on investment. Which is roughly what dividend stocks have returned historically. It will take about 22 years to build a million-dollar stock portfolio paying dividends.
By reducing the monthly investment to $500. A more manageable number for many people. It will take about 29 years.
Income taxes will also play a role. In determining the amount of time to build a portfolio.
But everyone’s tax situation is different. And taxes can be deferred or eliminated. By opening an Individual Retirement Account (IRA). And holding your dividend stocks there.
So, it’s best to consult with your tax advisor. About how taxes impact building a portfolio paying dividends. That is worth a million bucks.
Okay. Now you know a little bit about earning dividends from a million-dollar stock portfolio.
As a result, you might be interested in starting your dividend investing journey. Or continuing it, if you have already begun.
If so, are a few tips to make the process a little easier…
How To Build A Million-Dollar Dividend Portfolio
7 steps to build a million-dollar stock portfolio paying dividends.
- Think long term
- Identify dividend stocks for investment
- Develop a watch list
- Analyze the stocks on your watch list
- Invest regularly
- Reinvest all dividends
- Monitor your dividend stock portfolio
Next, let’s discuss these steps in a bit more detail…
1. Think Long Term
By now, you should know dividend investing isn’t about getting rich quickly.
So, invest for the long term. And don’t let short-term stock market volatility throw you off your plan.
2. Identify Dividend Stocks For Investment
There are several ways to find good dividend stocks.
I like picking from the list of Dividend Aristocrats. And the list of Dividend Kings.
Both lists represent stocks with great long-term track records. Specifically, of paying investors dividends.
You may want to read more about Dividend Aristocrats and Kings.
3. Develop A Watch List
Next, pick 20-30 stocks you may be interested in buying.
This becomes your watch list. For further analysis before investing.
4. Analyze The Stocks On Your Watch List
First, dividend stock analysis and selection can get involved. On the other hand, there is no need to overcomplicate it.
Especially when choosing from the Dividend Aristocrats and the Dividend Kings.
Furthermore, you can also get some help from experts. For this, I like the Simply Investing Report & Analysis Platform. For the right dividend stocks to buy. And when to buy them.
Finally, if I were you, there are two metrics you should pay attention to…
The first is the dividend yield. We have already discussed how critical that is.
Also important is the dividend payout ratio. It is a good indicator of dividend safety. And a company’s capacity to continue paying dividends.
5. Invest Regularly
Next, set aside money every month for your dividend investing. Because consistency is critical.
Whatever the amount is that you can afford to save and invest. Set up an automated deposit from your checking account to your brokerage account.
Then put that money into your selection of one or more dividend stocks each month.
6. Reinvest All Dividends
It is important to reinvest all of the dividends you receive.
One way is to ask your broker to do so automatically. Right back into the stocks that paid them.
A second way is to let them accumulate in cash. And when you are making your monthly investment of newly saved money. Invest the accumulated dividends in a lump sum.
7. Monitor Your Million Dollar Stock Portfolio
First, dividend portfolio management means keeping an eye on your stocks. Make sure the reason you bought the stock in the first place still holds. And that the company is not getting into financial difficulty.
Second, keep watch on your portfolio. Make sure no single stock becomes too big a part of the portfolio. Thus, ruining your diversification efforts.
Next, here’s a model dividend portfolio. That puts to work the steps we just discussed…
Million-Dollar Dividend Portfolio Example
First, I think 25 is a good number of stocks for a dividend portfolio. Enough for diversification. But not too many to keep track of and monitor.
It’s also important to make sure that a variety of industries are represented. Also for diversification purposes.
So, here’s an example of a 25 stock dividend portfolio that could ultimately become worth $1 million.
- AT&T (T)
- American Electric Power (AEP)
- AbbVie (ABBV)
- Altria (MO)
- Cisco (CSCO)
- Clorox (CLX)
- Coca-Cola (KO)
- Cummins (CMI)
- Dominion Energy (D)
- Duke Energy (DUK)
- Emerson (EMR)
- Hormel Foods (HRL)
- International Business Machines (IBM)
- Johnson & Johnson (JNJ)
- McDonald’s (MCD)
- NextEra Energy (NEE)
- Norfolk Southern (NSC)
- Paychex (PAY)
- PepsiCo (PEP)
- Philip Morris (PM)
- Procter and Gamble (PG)
- Realty Income (O)
- Southern Company (SO)
- Target (TGT)
- Verizon (VZ)
Ideally, each stock would be about 2-3% of the total investment value. At any point in time.
Alternatively, you could go the easy route. And choose one or more dividend-focused exchange-traded funds. Thus, taking the time required for dividend investing off your plate.
Okay, with all that said. Allow me to wrap up with a few parting comments…
Concluding Thoughts About Million Dollar Dividend Portfolios
Building a $1 million stock portfolio that pays dividends is entirely possible. However, it takes time, discipline, and consistency to become dividend income rich. And be a dividend millionaire.
Work at it hard enough, smart enough, and long enough. Then you might be able to live off dividends. Or, retire off the income from a million-dollar dividend income portfolio.
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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.