Receiving passive income every month can help you reach larger financial goals, pay your bills, or have extra spending money for fun. Here are the steps and strategies for how to set up a passive income portfolio so you can earn $3000 a month in dividends.
Your schedule is busy and the thought of finding time to make extra money is overwhelming. Instead of continuing to feel stretched to cover your existing, tasks, consider the possibilities of passive income through investing.
Earning money while you sleep allows you to increase your income without figuring out how to split your time even further. Put the work in upfront so you can continue to earn passive income with little extra effort. The upfront effort is not likely to the amount of time you spend on your day job.
$3000 a month in dividends is a substantial goal, especially if you’re just starting. It will likely take you time, consistency, and patience to get there.
And if you can hold off spending the dividend income, consider letting the earnings reinvest so you can compound your portfolio growth by automatically buying additional shares.
Here’s a look at how you can plan your stock purchases so you receive $3000 in monthly income or in any amount you target.
Table of Contents
Jump to the sections of this article using the links below.
- How much money do you need to invest to make $3000 a month in dividends?
- 5 steps to make $3000 a month in dividends with a stock portfolio
- How to choose dividend stocks to receive dividend payouts each month
- Keep these 7 things in mind when building your dividend income portfolio
One quick note I should mention. I’m not a licensed financial planner or financial advisor. The content on this website should be considered for information purposes and should not be considered investment advice. Always do your own research before making financial decisions. Or check with your favorite financial professional for additional information on what’s best to do for your situation.
How much money do you need to invest to make $3000 a month in dividends?
To make $3000 a month in dividends you need to invest between $1,028,571 and $1,440,000 with an average portfolio of $1,200,000. The exact amount of money you will need to invest to create a $3000 per month dividend income depends on the dividend yield of the stocks.
Dividend yield is the return on investment for the stocks you buy in terms of dividends. To calculate dividend yield divide the annual dividend paid per share by the current share price. You receive X% in dividends back for the money you invest.
You may think a shortcut to your goal is to pack your portfolio with stocks with higher dividend yields. The general recommendation for “regular” dividend stocks is to target dividend yields in 2.5% to 3.5% range.
The benchmark range was based on the stock market prior to 2020 and the unexpected year it’s proven to be. So you may want to check the dividend yield at the average price and 52-week high to see how the stock really lines up versus looking at it for just the current price.
To keep this example simple, let’s do all the math based on a 3% dividend yield and focus on quarterly stock payments.
Most dividend stocks pay dividends 4 times a year. To cover each month of the year, you need to buy at least 3 different stocks.
If each payment is $3000, you’ll need to invest in enough shares to earn $12,000 per year from each company.
To estimate how you’ll need to invest per stock, divide $12,000 by 3%, which results in a holding value of $400,000. And then multiply that by 3 for a total portfolio value of around $1,200,000. Not a small amount of money, especially if you’re starting from scratch.
And at that total value, you’ll likely want to invest in multiple stocks so spread the risk. Investing in the stock market always has a degree of risk involved.
And before you try using higher dividend yield stocks as a shortcut…
If you go back to the math above and realize you could reduce your investment by purchasing stocks with higher dividend yields hang on for a minute.
In theory, this could work, but dividend stocks with yields above 3.5% are generally considered risky.
Under “normal” marketing conditions, higher dividend yields in “regular stocks” may reflect a problem with the company. There’s concern about the company diving down the share price. The lower price per share raises the dividend yield.
Spend some time reading the commentary on a site such as SeekingAlpha. While everyone has their own opinion, you may gather some insight into the current status of the company and the general feeling about the security of the dividend. Is there a consensus that the dividend is likely going to be cut?
If the company cuts the dividend, the stock price will likely go down further. You’ll find yourself both out dividend income as well as portfolio value.
It’s not 100% certain what will happen and you can only guess based on the publicly available information. It’s your call on the risks you’re will to take. As with all investment purchases, make sure you’re an informed investor before deciding you’re willing to take the risk.
5 steps to make $3000 a month in dividends with a stock portfolio
Here is a 5 step plan to help you get started on your journey to creating a monthly dividend portfolio. Unless you happen to have a large amount of cash ready to be invested, you may need to break your plan down across multiple years. With time, determination, and consistency you’ll get there.
1) Open a brokerage account for your dividend portfolio, if you don’t have one already
If you don’t already have a brokerage account, the first step will be to open one. Or even if you already have a brokerage account, you may want to open another one specifically for this portfolio.
You’ll need to consider if you want to open a taxable account so that you can use the dividend income prior to retirement or open a separate tax-deferred account that focuses on putting away money for the future. Consider having a conversation with your favorite tax professional to understand what makes the most sense for your specific situation.
Tip: When you’re looking at brokerage companies, confirm if there are any trade commission fees and minimum account balances to avoid fees. In 2019 most of the large brokerage houses reduced their trade commissions to $0 per trade. This is great for you because you can build your dividend portfolio with smaller purchases without fees eating into your plan.
And one final thing to check before opening an account is to confirm how to direct deposit money into your new account as well as how to set up a transfer from your regular checking account.
Consistency is central to building an investment portfolio of any size, especially when your goal is $3000 per month. Automation makes it easier to reach your goals by taking a step out of the process.
If you don’t have a direct deposit option through your employer, being able to transfer money from your checking account is an alternative. Put a recurring reminder on your calendar for payday so that you transfer the money when it’s available.
With the money you have available to start your portfolio, start the transfer to your new account as soon as it’s open. Next, take a look at your budget to figure out how much you can invest each month.
2) Determine how much you can save and invest each month
In order to make $3000 a month in dividends, you’ll need to invest approximately $1,200,000 in dividend stocks. The exact amount will depend on the dividend yields for the stocks you buy for your portfolio.
Take a closer look at your budget and decide how much money you can set aside each month to grow your portfolio. Given the sizable amount of money, you’ll need to reach your $3000 a-month dividend goal, adding regularly to your portfolio will help.
The amount of money you can invest each month will partially determine how long it will take you to reach your goal.
If your budget is currently tight, set aside what you can. Start with even a small amount so that it’s something.
Next, take a closer look at your budget for opportunities to reduce your expenses so you can use that money to invest instead.
And you will probably need to plan to work on this goal year after year, focusing on a target increase in your monthly dividend income each year. For example, consider setting an annual goal of growing your monthly dividend income by $50 or $100 a month in dividends. It’s a great stepping stone that allows you to make progress without feeling discouraged.
Tip: At an annual target of increasing your monthly dividend income by $50 or $100 a month, it may feel like it’s going to take more than your lifetime to reach your goal. One other thing to consider is that the dividend snowball will start to speed up as each stock compounds annually with additional reinvestment in addition to new investment. You may also consider selling stock that has overperformed in value growth but is underperforming in dividend yield. You’ll make portfolio adjustments as you go.
3) Set up direct deposit to your dividend portfolio account
Get the direct deposit information for your brokerage account so that you can update your paycheck instructions. Hopefully, your employer allows you to split your paycheck a few different ways because you still need to receive money in your regular checking account. Make sure you pay your bills in addition to investing in future income!
If you’ve run out of paycheck instructions or your brokerage company doesn’t have clear direct deposit instructions, you should be able to set up free account transfers to your brokerage account. Put a reminder on your calendar for each payday to manually transfer the money you want to invest. Typically there’s always a backup plan if the original option isn’t available.
4) Choose stocks that fit your dividend strategy
Stock selection is a relatively personal decision and requires research into each company you decide to invest in. When it comes to creating a dividend portfolio, you’ll want to consider a few things for each company:
- The company’s health
- How long they’ve been paying a dividend along with their payment increase history
- How well their earnings are covering their dividend payments
- The company’s industry
The company’s health and earnings will help you understand how safe future dividend payments likely are. Researching the company and reading commentary is important to making decisions about which stocks to buy.
The dividend history and payment increase trends give you an idea of when the company will likely pay out in the future. Stocks with increasing dividends also help you snowball your way to your dividend goals.
And finally knowing the industries of the companies you decide to invest in allows you to create a balanced and diverse portfolio. Managing risk involves not putting all your eggs in one basket. Diversifying the companies you buy stock in along with the industries represented in your portfolio help spread the risk of your future dividend earnings.
The other aspect to consider is when the company pays its dividends. If you’re looking to earn dividends monthly, you might want to focus on companies that if certain payout schedules. That’s not to say a historical payout schedule should 100% guide you to buy a stock or skip one. It just adds to your decision process.
Create a watchlist of the companies you think you’ll want to invest in so that when you have the cash available you can start buying shares to grow your dividend income.
Related: Monthly and quarterly dividend calendars for Dividend Aristocrats
5) Buy shares of dividend stocks
And finally to reach your monthly dividend goal, start buying shares of stock in the companies you want to focus on. With the direct deposit from each paycheck, you’ll have cash ready and waiting when it’s time to make a purchase.
When you buy shares, double-check your watchlist to see which stock is the best value for the moment. It’s not so much about “timing the market”, which typically doesn’t work out in your favor but making sure you’re being efficient with your purchases.
Fortunately, as most large brokerage companies have reduced their trade commissions to $0, you’re able to buy stock in smaller numbers of shares without fees eating into your investment value.
Checking your watchlist helps you avoid research overwhelm and decision fatigue. If you’re buying shares in bluechip stocks, then it’s about looking at the calendar to see if you’ll qualify for the next dividend payment, or potentially if the price is down you might be able to buy additional shares for your money.
You’ll repeat this step until you reach your goal. With each purchase, you’ll be taking another step toward earning $3000 per month in dividends.
How to choose dividend stocks to receive dividend payouts each month
Quarterly dividend payments are the most common payout structure you’ll find. Some dividend stocks may also pay monthly, once a year, twice a year, or even less scheduled.
Keeping to the original example using quarterly payments, you need to buy at least 3 different stocks that follow specific payment patterns. And given the goal size, you’ll probably want to invest in more than just 3 stocks.
Before this starts to sound impossible, many stocks follow one of the 3 common dividend payment patterns.
Not all stocks will follow these patterns exactly, and of course, you can still buy stocks outside the patterns. This is simply a place to start looking.
The three dividend payment patterns align are as follows and actually map to the “month” in each quarter:
- January, April, July, and October: the first month of the quarter
- February, May, August, and November: the second month of the quarter
- March, June, September, and December: the third month of the quarter
If you buy one stock for each pattern, your investment portfolio will likely pay you dividends each month of the year.
Likely is the keyword there because nothing is 100% guaranteed.
The company may shift the payment between months, especially if the dividend usually pays out at the very beginning or end of the month. It’s also possible the company changes its payment schedule. That does happen from time to time.
Make sure you research the company before investing in it. Don’t assume you should buy or skip a stock because it fits or doesn’t the payment pattern your portfolio needs.
Related: Monthly and quarterly dividend calendars for Dividend Aristocrats
Keep these 7 things in mind when building your dividend income portfolio
When you’re ready to start your journey building a dividend income portfolio, here are seven lessons to keep in mind for your monthly dividend portfolio.
If you’re starting from scratch, start small
Based on the calculation above, you’ll need to invest about $1,200,000 to earn $3000. That may sound like a huge number, especially if you’re not starting from an existing IRA or another account.
Start setting incremental monthly goals such as $100 a month or $200 a month. Continue to invest and reinvest to build your portfolio up to your larger goal.
In 2019 the large brokerage companies their trading commissions to $0, so buying smaller blocks of shares is efficient. You don’t lose money to fees that you could have used for more shares.
The other benefit of setting incremental goals is you can decide whether you want to keep buying the same stock or switch to something else.
Spread the risk by investing in different stocks
At a basic level to cover all 12 months of the year with “regular” stocks, you need to buy shares in at least 3 different companies. In reality, putting all of approximately $1,200,000 into just 3 companies creates a fair amount of risk. What if something happens to one of those companies?
Diversifying the companies you purchase stock in spreads the risk.
Having a portfolio of 3 stocks means putting a lot of eggs in a few baskets. If something happens to one of those companies, a huge percentage of your portfolio is impacted.
You can spread the risk by not only investing in different companies but also in different industries. Buy shares in companies that are a good value at the time.
Consider dividing up your portfolio so that no single stock accounts for more than $200 or $250 of a single month’s dividend income.
Track the stock’s next ex-dividend date
To qualify for the next dividend payment you need to own the shares prior to the ex-dividend date. Ex-dividend or “excluding dividend” is a date announced as part of the dividend declaration.
As part of your watchlist or portfolio plan, note the ex-dividend date (either announced or take a hint from the past). And then before you make a purchase double check that data again.
If you missed the ex-dividend date, you may still want to buy the shares and wait longer for your first payment. Or you may decide to move onto something else on your watchlist that’s as good of a value at the moment.
Keep an eye on stocks with consistent dividend payment histories
When it comes to the stock market, the only guarantee is that it will go up and down. Ultimately the only guaranteed dividend is one that’s already been paid out. That was potentially a recent reminder in 2020.
All that aside, generally stocks with long histories of dividend payments have a better chance of continuing to pay out in the future.
These companies usually want to continue their payment trends otherwise face a price drop if they cut or stop.
Of course, market conditions or changes in the company could impact the dividend schedule. so nothing is 100%.
Avoid chasing dividend yield rates
High dividend yield rates, while they seem like a shortcut to a goal, could indicate a problem with a “regular” stock company. The stock price is being pushed down for some reason.
Make sure you do your company research on any and all companies you plan to buy stock in. You want to be an informed consumer and reduce the risk of losing your income and portfolio value.
Maybe based on your research, you decide to take the risk and buy that particular “regular” stock even though the dividend yield is higher. Ultimately you need to decide what’s best for you and your risk tolerance.
One quick note. REITs (or real estate investment trusts) are a different type of stock investment that is taxed differently so the dividend rates are typically higher than the “regular” stocks.
Know what taxes you may owe on the income
Depending on the type of account you’re building your dividend portfolio in, you may owe income taxes now or in the future. Income in general means additional taxes and paperwork.
If you’re building your portfolio in a regular brokerage account, and not a tax-deferred retirement account, you’ll likely have additional taxes to pay (or a reduced refund).
One thing to keep in mind for the future. If you want to receive the full $3000 per month, you may need to actually invest a larger amount of money to have extra to cover the taxes.
Contact your tax professional or the IRS to confirm your specific situation, and to see if they have any additional advice on how to proceed.
Reduce the risk by owning multiple stocks to cover your monthly payments
As mentioned above, it’s risky to put all of your eggs into a few baskets. Compared to a smaller goal, $3000 a month in dividends requires a large investment in individual companies.
It’s worth mentioning again. Future results aren’t guaranteed, even with long-paying companies. It’s always possible for dividend payments to end or for something to happen to the company.
Consider buying shares in several different companies for each of the payment patterns.
Create a simple dividend planner in Google Sheets to help you plan and track your dividend earnings.
Ultimately you’ll do the best you can with the information you have at the time. Course correct in the future if you need to.
The other benefit of being open to buying different stocks is that you may find a better buy for your money at that moment.
Are you planning to invest for $3000 a month in dividends?
Earning $3000 a month in dividends as passive income can really help you supplement your income or continue to grow your portfolio until you need the money.
Intentionally choosing stocks will create a portfolio that pays you dividends each month.
Always make sure to do your research upfront and right before making a purchase to confirm the company is a good fit for your portfolio, not just the calendar.
Buy stocks in multiple industries to spread the risk and consider splitting up your $3000 monthly goal across multiple stocks. Reduce the risk by not having all of your eggs in one or two baskets.
Incremental goals will allow you to grow your portfolio over time without getting discouraged. It’s ok to build your way up to $3000 in monthly dividend income over time. And once you reach your goal, you can also consider setting a higher goal such as $4000 a month or $5000 a month in dividends.
Over to you, what additional strategies or questions do you have about creating a dividend income portfolio?
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