How to make $50 a month in dividends - Fresh Dividends (2024)

5 steps to set up a dividend portfolio to earn $50 a month in dividends focusing on choosing stocks to align to the 12 months of the year.

You can earn extra money in your sleep thanks to passive income. And extra income streams help you achieve your larger, long-term financial goals. Is your future goal to pay your bills down the road with passive dividend income?

If you wait to spend the dividend income, letting your dividend payments reinvest compounds your future potential earnings. Your potential future income will be the result of additional deposits into the portfolio, reinvesting dividends, and annual dividend payment increases.

When you’re building your dividend portfolio for the first time, $50 a month in dividends is a great place to start to build your strategy and investing confidence. And don’t let the process feel overwhelming.

A simple investing plan and consistent savings habits are the foundations needed to reach your goal. The 5 steps to create a dividend portfolio to earn $50 a month in dividends include:

• Open a brokerage account, if you don’t have one already
• Determine how much you can budget to invest each month
• Set up direct deposit to your brokerage account
• Choose stocks based on your investment strategy
• Buy shares of stock

Building a monthly dividend portfolio of any size doesn’t happen overnight, especially when you’re starting from scratch. With a solid plan, you’ll get there dividend by dividend. Here’s a deeper look at the steps and strategies to help you get started with a path to reach your dividend income goal.

Table of Contents

Jump to the sections of this article using the links below.

• What is a monthly dividend portfolio?
• How much money do you need to invest to make $50 a month in dividends?
• 5 steps to make $50 a month in dividends with a stock portfolio
• How to align your future dividend payments to each calendar month
• 6 tips for 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.

What is a monthly dividend portfolio?

A monthly dividend portfolio is a collection of carefully selected stocks, mutual funds, ETFs, and other predictable investments that pay dividends. When curating your investments look at when they pay dividends so that you’ll have each calendar month of the year covered.

As you look at different investing approaches you’ll find a range of opinions on what people prefer. Ultimately you’ll need to decide if creating a monthly dividend portfolio fits with your financial goals, where you are in your life journey, and your risk tolerance.

One thing to keep in mind with a dividend income portfolio is no dividend is 100% guaranteed to pay based on past history. Typically there’s a higher probability of the payment pattern continuing in the future. It’s something to calculate into your selections and overall investing strategy.

How much money do you need to invest to make $50 a month in dividends?

To make $50 a month in dividends you need to invest between $17,143 and $24,000, with an average portfolio of $20,000.

The exact amount of money you need to invest for $50 per month in dividend income depends on the dividend yield of the stocks you buy. Think of a dividend yield as your return on investment.

The dividend yield is calculated by dividing the annual dividend paid per share by the current share price. For $X you invest, you receive Y% in dividends back.

For “regular” stocks, the usual recommendation is to focus on dividend stocks with a dividend yield in the range of 2.5% to 3.5%.

Keep in mind the 2020 and 2021 stock market was wild. The target benchmark might flex up slightly compared to previous years. You should also take a moment to decide if you’re ready to invest in a stock market with a lot of movement. Or at a minimum prepare yourself for the market swings if you’re ready to jump in.

Estimate the amount of money you need to invest

To understand how the math works, look at this example using a 3% dividend yield, middle of the target range.

Most of the dividend stocks you research pay 4 times per year, or quarterly. To receive 12 dividend payments per year, you’ll need to invest in at least 3 quarterly stocks.

To estimate the amount of money you need to invest per stock, multiple $50 by 4 for the annual payout per stock, which is $200. As you need 3 stocks to cover the 12 months, you’ll need to invest enough to receive total annual dividend payments of $600. $50 multiplied by 12 (months) also comes out to $600 in total annual dividends.

Dividing $600 by 3% results in a total stock investment value of approximately $20,000. For each stock, you’ll invest approximately $6,667

5 steps to make $50 a month in dividends with a stock portfolio

Here are simple 5 steps so you can plan your journey to earn monthly dividend income. Unless you happen to have about $20,000 in cash ready and waiting to be invested, this will take you some time to build. And that’s ok!

1) Open a brokerage account, if you don’t already have one

The first step is to open a brokerage account if you don’t already have one. There are several companies you can choose from.

Before you open an account, check to see if they charge any trade commission fees or have a minimum account balance requirement. In 2019 most of the large brokerage companies slashed their trade commissions and reduced their account minimums so keep looking if the first company you choose still has fees.

The move to $0 commissions per trade is great news for your dividend journey because it allows you to make smaller stock purchases. You can grow your dividend portfolio without fees eating into your plan.

Another thing you will need to decide when you start is if you’re opening a regular brokerage account or a tax-deferred retirement account. Have a conversation with your favorite tax professional to understand what makes the most sense for your specific situation if you’re not sure.

And finally, confirm you will be able to direct deposit money into your new account as well as set up transfer instructions from your regular checking account. Ask customer service if the information isn’t easy to find on their website. Central to building an investment portfolio of any size is consistently adding to it. Automation makes it easier to reach your goals by taking a step out of the process. And if you don’t have a direct deposit option through your employer, being able to transfer money from your checking account is an alternative.

If you have cash ready to add to 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 budget to invest each month

Next, open your budget and figure out how much money you can contribute to your portfolio each paycheck and month. If you don’t have about $20,000 in cash ready to invest, you’ll need to contribute to your portfolio regularly to reach your $50 a month dividend goal.

The amount of time it will take you to reach your goal will depend on how much money you can invest each month, in combination with your ideal timeline to hit your goal.

If your current budget is tight, contribute what you can. Starting with a small amount is still a great step towards your goal.

And then go back to your budget and look for opportunities to reduce your expenses so you can use that money to invest instead.

Or consider setting your first dividend goal to a smaller target such as $25 a month in dividends. Give yourself confidence by setting a goal you can reach this year. Start with a stepping stone you can achieve and scale up in the years to come.

3) Set up direct deposit to your brokerage account

Find 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 so you can send money to your brokerage account in addition to depositing money into your regular checking account. Make sure you pay your bills in addition to investing for future income!

If you can’t add another paycheck split instruction or your brokerage company doesn’t have clear direct deposit instructions, you should be able to set up free electronic transfer instructions in your brokerage account. Put a reminder on your calendar for each payday to manually transfer the money you plan to invest.

There’s always a backup plan if direct deposit isn’t an option or contact customer service for additional assistance.

4) Choose stocks based on your investment strategy

Your investment strategy and stock selection are relatively personal decisions. Where you are in your life journey, your risk tolerance and your dividend goals will affect the stocks you buy compared to someone else.

Research each company you’re thinking of investing 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 much they are increasing their dividends annually
• How well their earnings are covering their dividend payments
• The company’s industry

The company’s health and earnings will help you estimate the safety of future dividend payments. Researching the company and reading commentary gives you the information you need to decide 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 help you snowball your way to your dividend goals.

Managing risk involves not putting all your eggs in one basket. Buying stock in different industries helps spread the risk of your future dividend earnings. Depending on economic and market conditions, one industry could be doing better while another is struggling. Having balance and diversity in your portfolio helps protect your overall investment and income.

The other aspect you need to look at 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% influence if you buy a stock or skip one. It just adds to your decision and filtering 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 stock

As you have cash available, start buying shares in the stocks you want to include in your portfolio to reach your monthly dividend goal. With the direct deposit from each paycheck, you’ll have cash ready in your account 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.

How to align your future dividend payments to each calendar month

Most dividend stocks pay quarterly, four times per year. To build your monthly dividend portfolio, you’ll need to buy at least 3 different quarterly stocks so all 12 months are covered. You can also research REITs (Real Estate Investment Trusts), ETFs, and bond funds that pay monthly.

For this example, let’s focus on “regular” quarterly dividend stocks. There are 3 common dividend payment patterns that many stocks follow. Not all stocks will follow one of these patterns, but it makes it easier to narrow down potential companies for your portfolio.

The three common payment patterns align to the month of the quarter: first month, second month, or third month. This works out to three stock dividend payment patterns:

• January, April, July, and October
• February, May, August, and November
• March, June, September, and December

If you buy one stock per payout pattern, your investment portfolio will typically pay you dividends each month of the year. Sometimes stocks that pay at the very beginning or end of a month will shift months, so it will be close but not always 100% exact.

And remember just because a stock fits a payment pattern, that doesn’t mean it’s the best stock to buy. Or in the reverse, skipping a great stock because the payment pattern isn’t exactly what you want may not be a good strategy either. It’s OK if your portfolio isn’t 100% equal every month. Between dividend reinvestment and dividend payment increases your future monthly earnings will change anyway. Do your research first to make sure it’s a solid company and stock to add to your portfolio.

Related: Monthly and quarterly dividend calendars for Dividend Aristocrats

6 tips for building your dividend income portfolio

When you’re ready to start investing in your dividend income portfolio, here are six tips to help you in your journey toward earning $50 a month in dividends.

Don’t chase high dividend yields

$20,000 is a lot of money. And if you think you can reach your monthly dividend goal faster by investing in higher dividend yield stocks, pause for a moment. While it feels like a simple shortcut, regular stocks (i.e. not REITs) above 3.5% are generally considered risky.

Excluding the weird market conditions for 2020-2021, where share prices moved a lot, higher dividend yields may indicate a problem with the company. Concerns about a company drive down the price per share, As the stock share price goes down, the dividend yield goes up.

Read news articles and commentary on the company and stock to understand what’s going on.

Stocks with higher dividend yields are usually considered at risk for a dividend cut. In addition to reducing your dividend income, a dividend cut usually comes with a stock price reduction. So you lose income and overall portfolio value if that happens.

That’s not to say you shouldn’t consider taking a chance because sometimes it could work out in your favor. Do your research and make each purchase as an informed consumer, with your eyes wide open and a solid reason.

Focus on stocks with consistent dividend payment histories

Of course, the initial caveat is the only thing you can be sure of is the stock market will go up and down. And the only guaranteed dividend is one that’s already paid out with that lesson reinforced in 2020.

Setting that aside, if your goal is to build a dividend income portfolio, focus on stocks with consistent dividend histories, the longer the better. Those stocks are likely to have future payments compared to companies with shorter dividend histories.

The dividend aristocrats and dividend kings are two categories of stocks with long histories of paying and increasing their dividend payments (25+ and 50+ respectively). As you’re looking toward the future growth of your dividend portfolio, stagnant dividend payments may not align with your strategy.

Long-term dividend stocks usually aim to continue the payments in the future. If the dividends stop, decrease, or in some way change, the share price will typically reflect it. It’s always possible something in the future will impact the dividend schedule, such as market conditions or a merger.

Keep a calendar of future ex-dividend dates

The ex-dividend date means the stock is trading “excluding dividends”. If you buy shares on or after the ex-dividend date your portfolio won’t qualify to receive the next announced dividend payment.

As part of your dividend research check to see if the next dividend has been announced and the associated dates.

You can use historical dates as a guide to estimate future dates. Sometimes they will shift, but you’ll notice there’s usually a consistent trend.

If you missed the ex-dividend date, you could still buy shares for the future. Simply remember it will take a little longer for your dividend portfolio to start paying out. Otherwise, check your watchlist to see if there’s a different stock you might want to buy at the moment. Having a plan for the initial stocks you want to include in your portfolio and estimated dividend dates will help you prioritize your purchases.

Consider any potential income tax implications

When you open your brokerage account you need to choose a regular, taxable account or a retirement tax-deferred account. If you’re investing in a regular brokerage account you’ll likely owe income taxes on your dividend income.

With a goal of $50 per month in dividend income in a taxable account, you may want to actually aim for a slightly larger portfolio to cover the federal and state taxes.

Depending on your tax bracket, your dividend income is likely taxed at a lower rate than your paycheck. You’ll see this referred to as qualified dividends vs ordinary dividends.

Contact your favorite tax professional or check the IRS website for more information about your specific situation. They can guide you to the right resources and tax considerations.

Enable Dividend Reinvestment

Dividend reinvestment is an automatic process that takes the cash dividends you receive and “purchases” new shares and partial shares in the same stock. You’ll hear this referred to as DRIP. There are varying opinions on if you should always reinvest in the same stock, or if you should do it manually.

There are pros and cons to this approach. Now that trading commissions are down to $0 it’s easier to manually reinvest your dividends assuming you have enough money to buy a full share.

If you’re focused on a long-term buy-and-hold strategy, automatically reinvesting dividends makes the process easier. On the other hand, reinvesting adds to the paperwork if you decide to sell the shares.

Take a closer look at your dividend strategy to decide what approach fits your plans. But if you decide to reinvest, double-check that it’s turned on for each stock you buy. Sometimes the brokerage companies default to paying cash instead of automatically reinvesting.

Build your portfolio incrementally over time

If you’re starting your dividend portfolio from scratch and don’t have $20,000 immediately ready to invest, don’t worry.

Start with the 5 steps above and begin saving money to invest. Breaking down your goal into smaller targets. Maybe set your first goal to reach a $25 a month dividend portfolio by the end of the first year or two, and then scale up towards your next goal. Keep investing and reinvesting to hit your $50 goal in the future, and then scale up to $100 a month in dividends or even more.

Since the large brokerage companies have cut their trading commissions to $0, fees won’t eat into your investing strategy. You can make smaller stock purchases over time.

Also, consider automatically reinvesting your dividends to help your portfolio grow in addition to your new deposits. A dividend snowball takes time to pick up speed. Every dividend helps you reach your goal, even the smaller dividend payments.

What other thoughts do you have about investing to make $50 a month in dividends?

Earning $50 a month in dividends is a great way to grow your portfolio with passive income for future use.

Open a brokerage account and start planning your strategy. Write down your watchlist and buy stocks when you have the money available. Research the companies and their historical payout patterns to estimate how future dividends might be paid.

Spread the risk by buying stocks in different companies and different industries. Avoid having all of your eggs in one basket by splitting up the $50 per month goal across multiple stocks. With an initial goal of $50, you may want to limit yourself to a relatively few stocks and then buy into different companies as you set larger goals.

Research is key to ensuring you know what are the best companies to invest in at that moment.

Don’t get discouraged if it’s going to take you a year or longer to reach your $50 in dividend income goal. Start where you are and grow your portfolio over time.

Over to you, what are your questions about creating a dividend income portfolio?

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