Even if you’re new to the investment game, you likely understand that your dollars can make you more dollars. And you’re smart to start small and work your way up. Unless you’ve had a big windfall, you’re more than likely working with a small amount of capital to begin with, but how can you make it work for you? And if you found this page, you might be wondering how to make 100 a month in dividends!
Dividends are one way to set up passive income, and have your money working to your advantage. But what is a dividend stock, and how do you even get started? How much can you make?
Let’s start at the very beginning. Curious about how to make 100 a month in dividends? Read on for all the guidance you need to step into the world of passive income through dividends.
This post was written by our staff writer, Lindsey Smith.
When you buy a stock, or share of a stock, you’re buying a piece of that company. If you buy any shares of stock in Apple, for example, technically you’re a part owner in Apple.
If the company that you invest in is making a bunch of money, there are a few things they can do with it.
- First, they can reinvest it back into the company. This money would go towards things like making new products, or research and development.
- Next, they can share buybacks, where you end up owning more of the company because the amount of shares in the pool decreases overall.
- And finally, they can pay out cash payments to their shareholders, called dividends.
A dividend stock is simply a stock that is paying out dividends to its shareholders.
How Does Dividend Investing Work?
How does dividend investing really work? How do you make money on dividends? Is dividend investing a good strategy? And, how can you get started with dividend investing?
How do you make money on dividends?
So, how do you make money on dividends?
It’s pretty simple.
You invest your capital in a company by buying shares of stock. When that company makes a surplus of money, they will send cash payments to your brokerage account, typically on a scheduled basis.
Most companies pay dividends quarterly. Other stocks, like REITs pay monthly.
There are some that pay annually, and even some that pay discretionary dividends, which are basically paid out whenever they want.
How to start dividend investing
Companies have different amounts of stock in their pool, and not all companies pay a dividend.
You might be wondering how to start dividend investing, and it’s not really difficult.
Start by looking up some stocks that are paying dividends inside your brokerage account.
- In the stock summary, you’ll find the yield, which can give you an idea of the rate you’ll be earning from your investment.
- Let’s say the stock has a yield of 4%. If you were to buy $100 worth of that stock and held it for a year, you would receive $4 in dividends.
When you find one you like, simply buy the stock and the dividends will be paid out according to the schedule specified by the company (as we discussed earlier, this is likely quarterly).
When you’re looking at the yield of dividend stocks, you’re probably immediately wondering what stock pays the highest dividend. As of March 2022, the highest dividend stock out there is Annaly Capital Management Inc. at 12.96%.
You’ll be tempted to pick the stocks that have the highest yield, because sometimes they can get really high. But, if you see a dividend yield over 10%, it’s more than likely a dividend trap, and you want to steer clear of those.
It’s usually a red flag that the company is in some kind of trouble, or that it’s new enough to be paying out massive dividends that are all but certain to come down significantly, or even be eliminated. It’s best to stick to the companies that pay out sustainable dividends over time, and even better if you can find companies that have paid out dividends for years.
Important Things to Know About Dividend Stocks
When choosing dividend stocks, you should also pay attention to a few dates: the declaration date, ex-dividend date, and payment date.
This is just the day the company announces there’s going to be a dividend available with their stock. It’s how you’ll determine how long the company you’re looking at has paid dividends out to its shareholders. Conversely, it’s how you see when new companies are ready to share dividends.
The ex-dividend date is the date by which you need to hold a stock in order to qualify to receive the dividend. If you buy shares on or after that date, it’s too late to receive the dividend for that time period.
This is the date you’ll receive the dividend in your investment account.
Dividends count as taxable income. Even if you reinvest it, or leave it in your brokerage account, you’re still going to have to pay tax on it. The amount of tax depends on what kind of dividend income it’s classified as.
- Ordinary dividends are taxed at your regular rate.
- Qualified dividends receive better tax treatment.
There are several criteria for qualified dividends. It depends on the company and whether or not you held the stock for more than 60 days before the ex-dividend date.
So now that you understand how dividend investing works, let’s talk more about how much you can make, and how to make $100 a month in dividends.
How Much Can You Make a Month in Dividends?
Is dividend investing a good strategy? Just how much can you make, and how much do you need to invest to make $100 a month in dividends?
Is dividend investing a good strategy?
Dividends are one strategy of many, and having dividend stocks can certainly help grow your portfolio or provide you with passive income. But they require a lot of patience, time, and a LOT of capital to invest to make even $100 a month in dividends. So in short, it can be a good strategy, but it probably shouldn’t be your only strategy.
How much do I need to invest to make 100 a month in dividends?
If we go with our earlier example and found a stock that paid a 4% dividend annually, you would need to invest $30,000. That would earn you $1,200 for the year, which works out to $100 per month in dividends.
So as you can see, it takes a high amount of capital to rely on dividends to create passive income. This is one of the reasons a lot of people choose to reinvest their dividends – they aren’t going to make much difference to my monthly income, but they can help your investment portfolio grow, in turn earning you more money in the long run.
How much can you make a month in dividends?
How much you can earn a month in dividends is fully dependent on how much you invest.
Let’s say you invested $100,000 and the dividend yield is 4%. You’d earn $4,000 per year.
Or, you could invest $10,000,000 in these same stocks and dramatically increase your dividend earnings to $400,000 a year!
If you want to earn way more in dividends, then you just need to invest way more. It’s as simple as that!
So where should you start looking for the best dividend stocks for 2022? We wrote about it extensively in our recent post, “The 15 Best Dividend Stocks and ETFs in 2022“, but the below options are some good choices to get you started as well!
Exxon Mobil (XON)
Exxon Mobil is the largest U.S oil maker. Stock prices still aren’t where they were pre-covid, so you can find good growth potential here. With a dividend of 6.1%, this is a really good choice for a dividend stock.
Simon Property Group Inc. (SPG)
This is a well established real estate investment trust (REIT). Their portfolio mainly focuses on shopping malls and outlet centers. Their current yield is 6.3%.
JP Morgan Chase & Co (JPM)
Pretty much the biggest bank in the U.S., this is a great one for stability. It was one that weathered the 2008 crash the best, so you can likely find security with them. Their current dividend is around 2.5%.
Johnson & Johnson (JNJ)
I love this one because it’s been paying out dividends for over 60 years, and has been continuously increasing dividend amounts. It’s current yield is around 2.5%.
They’ve also been paying out dividends for a very long time, and innovations will keep them at the top of the pile for years to come. Their current dividend is 7%.
Rio Tinto (RIO)
This large-cap mining company specializes in important minerals like gold, copper, uranium, and iron ore. Shares have been down so you can get in at a good price right now. Their dividend yield is also around 7%.
The above shares pay out dividends quarterly. Ever wonder what stocks give you monthly dividends? What are some specific monthly dividend stocks?
What stocks give you monthly dividends?
The most common type of stock that pays monthly dividends are REITs, or real estate investment trusts. They invest in things like apartment buildings, malls, and outlets. You usually have to invest a minimum of $100,000 to be included in these types of REITs though, so that’s not the most accessible advice.
Here are a few more that pay monthly dividends… Here are some specific monthly dividend stocks.
Main Street Capital Corporation (MAIN)
Paying out upwards of a 5.85% dividend, this Texas investment firm provides debt and capital to lower and middle market companies.
Dynex Capital Inc (DX)
This is a mix between a REIT and an investment company, they invest in leveraged mortgage loans and securities. Their dividend yield is around 9.8%, and shares have been down a bit so it may be a good time to buy.
How to Make 100 a Month in Dividends – Here’s What I Would Do
While I’m not a financial advisor, if it were me, I would invest 80% in more traditional, stable stocks, in a mix of sectors.
I’d probably have a REIT or two in there, as well as some of the ones I listed above that have paid out for years.
The other 20% I’d put into more risky investments, right now probably something like Lucky Block, a top blockchain asset that’s still fairly young, but seeing an incredible 4.000% dividend return.
So you can decide to go with my picks, or just go anything else you might find out of the box that you’d like to try. Because like most things, it’s the weird things you try that give you the best stories. But I also like having stability and security and not just playing with my money.
How about you? What would you do? How would you make $100 a month on dividends? Tell us in the comments below!
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.