Passive income. It’s the holy grail for a lot of people out there. Unlike the holy grail, though, passive income is very attainable for everyday people.
Even enough passive income to live off of. I’d know. I was in debt at 27 years old.
But by living well below my means and consistently and aggressively investing my savings into high-quality dividend growth stocks, I achieved financial freedom at only 33 years old.
What’s that mean? Well, my passive dividend income was enough to cover my basic expenses in life. And that meant I didn’t really have to have a job anymore.
Now, “financial freedom” in purely dollar terms is different for everyone. That’s because everyone has different needs and lifestyles. But $1,000 per month in purely passive dividend income is a great start.
And that’s enough of a foundation to unlock a good amount of financial freedom in anyone’s life. Today, I want to tell you how to make $1,000 per month in dividends. Ready?
Let’s dig in.
Before I get started with the nuts and bolts, let me just say that making $1,000 per month in dividend income is extremely possible for almost anyone out there.
I grew up on welfare. My parents abandoned me when I was a kid. I don’t have a college degree. I quit my car dealership day job, which didn’t even pay a super high income, at 32 years old.
Yet I personally earn more than $1,000 per month in dividends. So if you say to me, “I can’t do it”, I’m going to tell you that you’re wrong. Because I did it coming from nothing in life. Actually, worse than nothing. I was below broke when I started my journey to financial freedom in my late 20s.
And here I am, financially free in my 30s.
Let me just say that it’s fantastic. It’s worth whatever so-called “sacrifices” you might have to make. Because I can’t think of a bigger sacrifice in life than to go without being financially free. People who have to go to jobs they don’t like? To me, that’s the sacrifice.
So where do you start? How do you make $1,000 per month in dividends?
Well, you really have to start with a SMART goal. It’s an acronym. S.M.A.R.T.
That’s specific, measurable, actionable, realistic, and time-bound.
Put a goal for $1,000 in monthly dividend income together that’s SMART. This SMART goal will be specific to you, because we all have different incomes, savings rates, tax rates, family situations, time horizons, risk tolerances, etc. But if you insert all of those specifics within the framework of a SMART goal, you will be able to design a path toward $1,000 per month in dividend income that can be reverse engineered so that you know how to get there and when you’ll get there.
Something that’s not specific to you? The numbers around a portfolio’s value and yield as it pertains to making $1,000 per month in dividend income.
A portfolio’s value and its yield are simple math. Mastering this math and using this math within the SMART goal framework will tell you exactly what kind of portfolio you have to build in order to produce that $1,000 per month in dividend income.
Let me explain. I’ll give you two examples of this math.
A $300,000 portfolio yielding 4% will produce $12,000 per year in dividend income. That’s $1,000 per month in dividends. Likewise, a $400,000 portfolio yielding 3% will also produce $12,000 per year in dividend income. That’s also $1,000 per month in dividends. $300,000 is easier than $400,000. So why not just always go for higher yield?
Well, that’s because yield and risk are almost always closely correlated. The higher the yield on your portfolio, the more risk you’re taking on. We just put out a video on the AT&T dividend cut. I’ve heard from investors who had 10% or more of their portfolios in AT&T, and now they’re stressed out and trying to reposition their portfolios.
As I’ve said so many times, don’t chase yield. When you stretch for yield in order to produce more dividend income from less capital, there’s no free lunch there. The trade-off is more risk.
Now, that’s up to you as to how much risk you’re comfortable with. But you’ll have to be thoughtful about portfolio construction as it pertains to portfolio-wide yield. Personally, I balance some of the higher-yielding – but still high-quality – dividend growth stocks out there with some of the lower-yielding, faster growing, and even higher-quality dividend growth stocks in order to balance the income needs of today against the growth desires of tomorrow. I’m thinking about the Jason of 2021 and the Jason of 2050.
So what’s a good yield target for a dividend growth stock portfolio?
Well, I think between 3% and 4% is reasonable. That’s producing a compelling amount of income without taking on way too much risk. My own portfolio has typically oscillated in that range, albeit mostly on the lower end. But market conditions can cause this to vary. All else equal, higher stock prices result in lower yields – and vice versa.
With that in mind, a portfolio of between $300,000 and $400,000, depending on where you’re at in that yield range, will produce $1,000 per month in dividend income.
Building a portfolio of that size within a sensible time frame will likely require you to save 50% or more of your income, month in and month out, over a period of, perhaps, 7-10 years, which you’ll be investing into a range of high-quality dividend growth stocks. But the nature of dividend growth investing means that the growing dividend income you’ll be building along the way will supercharge your efforts, as your stocks themselves will be producing growing income organically. That’s compounding kicking in – investing just $2,000 per month doesn’t sound crazy. But it can turn into over $400,000 in a decade compounding at 10% annually – right in line with the US stock market’s long-term average. And you might do better than 10%.
The compounding process is unbelievably powerful. But you have to get started in order for it to do its magic.
As for which dividend growth stocks to potentially buy, we’re putting out content every single day on just that. We’re vetting high-quality, compelling ideas and then presenting them to you. There’s also my Patreon, where you can see what I’m personally invested in and buying. As for how many stocks you should have in your portfolio, we also did a video on that not long ago.
The coolest thing of all? $1,000 per month in dividends is just the beginning. Because of the nature of high-quality dividend growth stocks, that $1,000 will quickly compound and grow all by itself. That happens through the dividend raises your stocks will be handing out to you.
From here, it’s on you to put that SMART goal together, save, invest, reinvest growing dividends back into more growing dividends, and build up that safe, growing passive dividend income to a level that’s $1,000 per month or more. This can happen in a matter of only a handful of years, if you have a good income, get serious with the saving, and invest intelligently into wonderful businesses at attractive valuations. Soon enough, you’ll be financially free and doing what you want, when you want.
— Jason Fieber
P.S. If you’d like access to my entire six-figure dividend growth stock portfolio, as well as stock trades I make with my own money, I’ve made all of that available exclusively through Patreon.