Dividend income is my favorite form of passive income because it is truly passive. I don’t have to do anything and the dividends keep rolling in. I like having rentals too, but they are just more work.2015 wasn’t a great year for stocks in general, but our dividend portfolio did okay. It managed to pull off a small positive gain if we count the dividend payment. We also exceeded our goal of generating $10,000 in dividend income so that was really awesome. My goal for 2016 is to increase that dividend income to at least $11,500. Let’s see how our dividend portfolio performed in 2015 and take it from there.
DividendPortfolio
The main strategy for our dividend portfolio is to invest in solid companies with good track records of raising their dividend. This way, our dividend income will grow every year even if we can’t add new money. We have been doing pretty well so far since we started following this strategy. Here is our dividend record since 2012. Prior to 2012, most of the investment in our taxable account was in growth stocks.
- 2012: $6,791
- 2013: $8,036
- 2014: $8,759
- 2015: $10,695
- 2016: projected $10,925
Actually, our 2016 dividend income should be a little higher than projected. The great thing about the dividend portfolio is that our dividend income should increase every year. This is due to three factors.
- Reinvested Dividend – I reinvest most of our dividend income in new stocks. This will increase our total shares.
- Dividend Growth – Most of the companies in our portfolio should increase their dividend payout every year. There will be some exceptions as companies face problems. See KMI below.
- New Investment – We try to add new money to our dividend portfolio when we have extra savings. This will also increase our total shares. In 2016, I plan to hoard cash and buy when stock is down.
2015 Dividend Income
In 2015, the S&P 500 index ended up right about the same level as it started. Individual stocks varied widely,though. Our energy stocks dropped quite a bit, but some others did very well. Overall, our dividend portfolio lost about $5,000 in value. However, we came out ahead if we take dividends into account.
2015 gain: 1.8%
Dividend portfolio value (1/1/2016): $300,249
Also, we beat our benchmark – Vanguard Dividend Appreciation ETF (VIG.) VIG had a negative year even when you count dividend. This is very important to me because if we can’t beat VIG, then I might as well just invest in VIG instead of individual stocks.
Worst Dividend Stocks
Kinder Morgan Inc.
KMI had a terrible year. The stock dropped nearly 65% and they are cutting dividends by 75% in 2016. I’m thinking about picking up some more shares, though. I need to do more research, but I believe the business will back to normal once the energy price recovers. Of course, it might take a few years to get back to where it was.
Walmart
Walmart dropped 30%. I think the dividend is still safe at the moment.
Shell
Shell dropped 27% last year. They seem to be more sensitive to the oil price weakness than other oil companies. Exxon and Chevron also dropped, but not as much as Shell. If oil price continues to be low, the oil companies probably will have to cut dividends at some point.
2016 Outlook
Our long term goal is to generate $15,000 in dividend income per year by 2020. Mrs. RB40 plans to retire then and the dividend income would help pay for our cost of living. For 2016, I think we should be able to meet our incremental goal of $11,000 in dividend income. The projection is based on current dividend payout and it is already very close to $11,000. Most of our companies should raise their dividend next year and push us over. I’m also hoarding cash and plan to add more shares if we see a big slide in stock prices next year.
Do you invest in dividend stocks? Should I pick up more shares of Kinder Morgan?
Disclaimer:I have positions in all the stocks listed here. This isnota recommendation. My stock picking track record isn’t great so you need to do your own research. This post will help us keep track of the gains and dividends to see if they meet my passive income goal. If you need help with financial planning, considersigning up with Personal Capital. Personal Capital will help you keep track of all your investments in one place and can hook you up with a personal financial adviser as well.
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Joe started Retire by 40 in 2010 to figure out how to retire early. After 16 years of investing and saving, he achieved financial independence and retired at 38.
Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects across the USA so check them out!
Joe also highly recommends Personal Capital for DIY investors. They have many useful tools that will help you reach financial independence.
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FAQs
The short answer is yes – it's entirely possible to live off dividends in retirement. In fact, more and more people are doing it every day. The key is to start early, invest wisely, and reinvest your dividends so your portfolio can continue to grow.
How do you create a passive income dividend portfolio? ›
Setting Up Your Portfolio
- Diversify your holdings of good stocks. ...
- Diversify your weighting to include five to seven industries. ...
- Choose financial stability over growth. ...
- Find companies with modest payout ratios. ...
- Find companies with a long history of raising their dividends. ...
- Reinvest the dividends.
15 Best Dividend Stocks to Buy for 2024
| Stock | Dividend yield |
|---|
| Vail Resorts Inc. (MTN) | 4.2% |
| First American Financial Corp. (FAF) | 3.8% |
| Pfizer Inc. (PFE) | 6.6% |
| Coca-Cola Co. (KO) | 3.3% |
11 more rows5 days ago
Dividend stocks
Dividends are paid per share of stock, so the more shares you own, the higher your payout. Opportunity: Since the income from the stocks isn't related to any activity other than the initial financial investment, owning dividend-yielding stocks can be one of the most passive forms of making money.
How big a portfolio do I need to live on dividends in retirement? ›
How Much Money You Need to Retire on Dividends. As a rough rule of thumb, you can multiply the annual dividend income you wish to generate by 22 and by 28 to establish a reasonable range for how much you need to invest to live off dividends.
What is the dividend rule for retirement? ›
The 4% rule is intended to supply a steady stream of income while maintaining an adequate account balance for future years. Assuming a reasonable rate of return on investment, the withdrawals will consist primarily of interest and dividends.
What does a good dividend portfolio look like? ›
You Can Build a Dividend Portfolio for Regular Income
Hold between 20 and 60 stocks to reduce company-specific risk. Roughly equal-weight each position. Invest no more than 25% of your portfolio in any one sector. Target companies with Safe or Very Safe Dividend Safety Scores™
How to make $5,000 a month in dividends? ›
To generate $5,000 per month in dividends, you would need a portfolio value of approximately $1 million invested in stocks with an average dividend yield of 5%. For example, Johnson & Johnson stock currently yields 2.7% annually. $1 million invested would generate about $27,000 per year or $2,250 per month.
What are the 3 dividend stocks to buy and hold forever? ›
7 Dividend Stocks to Buy and Hold Forever
| Dividend Stock | Current Dividend Yield* | Analysts' Implied Upside* |
|---|
| Home Depot Inc. (HD) | 2.5% | 10.5% |
| Procter & Gamble Co. (PG) | 2.4% | 15.4% |
| Johnson & Johnson (JNJ) | 3.1% | 25.3% |
| Merck & Co. Inc. (MRK) | 2.4% | 10.6% |
3 more rowsApr 9, 2024
Yes, there are a lot of advantages. However, there's also a price to pay for those benefits. The most obvious advantage of dividend investing is that it gives investors extra income to use as they wish. This income can boost returns by being reinvested or withdrawn and used immediately.
Top 10 Highest-Yielding Monthly Dividend Stocks in 2022
- What dividends and REITs are.
- ARMOUR Residential REIT – 20.7%
- Orchid Island Capital – 17.8%
- AGNC Investment – 14.8%
- Oxford Square Capital – 13.7%
- Ellington Residential Mortgage REIT – 13.2%
- SLR Investment – 11.5%
- PennantPark Floating Rate Capital – 10%
Wrapping up ways to make $2,000/month in passive income
- Try out affiliate marketing.
- Sell an online course.
- Monetize a blog with Google Adsense.
- Become an influencer.
- Write and sell e-books.
- Freelance on websites like Upwork.
- Start an e-commerce store.
- Get paid to complete surveys.
Passive Income: 7 Ways To Make an Extra $1,000 a Month
- Buy US Treasuries. U.S. Treasuries are still paying attractive yields on short-term investments. ...
- Rent Out Your Yard. ...
- Rent Out Your Car. ...
- Rental Real Estate. ...
- Publish an E-Book. ...
- Become an Affiliate. ...
- Sell an Online Course. ...
- Bottom Line.
Chevron Corporation (NYSE:CVX), one of the best dividend stocks for passive income, has been growing its dividends for the past 37 years consistently. The company offers a quarterly dividend of $1.63 per share and has a dividend yield of 3.37%, as of March 20.
Is dividend income good for retirement? ›
Like most things used in moderation there isn't anything wrong with dividends, or the stocks that pay them. In fact, higher-dividend paying stocks are usually older, established, and strong companies. They can be good components of retirement income plans and help provide some diversification in investment portfolios.
Should I invest in dividend stocks for retirement? ›
Although rates have been relatively low recently, inflation still has a corrosive effect on investment returns. Investors who hold positions in dividend-paying stocks may be better able to navigate higher inflation rates while saving for retirement.
How much money do you need to make $50000 a year off dividends? ›
If, for example, your portfolio gets to a value of $1.5 million, you could invest in a fund or multiple investments that yield an average of 3.3%. At that rate, you could generate $50,000 in annual dividends. With a lower portfolio balance of $1 million, you would need to target an average yield of 5%.
Do dividends count as income in retirement? ›
Pension payments, annuities, and the interest or dividends from your savings and investments are not earnings for Social Security purposes. You may need to pay income tax, but you do not pay Social Security taxes.
The main strategy for our dividend portfolio is to invest in solid companies with good track records of raising their dividend. This way, our dividend income will grow every year even if we can’t add new money. We have been doing pretty well so far since we started following this strategy. Here is our dividend record since 2012. Prior to 2012, most of the investment in our taxable account was in growth stocks.
