Whether you need regular income from the stock market to supplement your current income, earn higher returns or achieve some savings goals, a smart dividend investing strategy can get you there.
In addition, a dividend investing strategy can be appealing during market downturns and times of economic uncertainty. Given that’s the current situation, dividend investing can be even more attractive.
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How you execute your dividend strategy will depend on your broader investing strategy — passive or active. So let’s look at how you can earn $1,000 per month from dividend-paying stocks as a passive or active investor, plus other factors that can affect your strategy:
Passive: How to Earn $1,000 Per Month From Dividend Stocks
As a passive investor, your goal is to select an exchange-traded fund, or ETF, that will pay you $1,000 every month (or $12,000 every year).
Let’s assume the dividend yield is your only consideration, just as an example. The USA Global Sea to Sky Cargo ETF (ticker: SEA) has the highest dividend yield, at 18.8% at the time of writing in mid-March. This ETF invests in companies that build vessels and transport goods across the world’s oceans.
At an annual dividend payment of $2.40 per share, you would need to purchase 5,000 shares of this ETF to hit your goal. At a market price of $12.76, that is an initial investment of $63,800.
What About Diversification?
One of the advantages of ETFs is the level of diversification they provide to retail investors. Given the importance of diversification as a risk-minimizing strategy, an ETF that is concentrated in one industry may not be appealing to many passive investors.
A better option may be to consider the S&P 500 dividend ETF with the highest yield. In this respect, the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) has the highest annual dividend yield (10.5%) at the time of writing.
JEPQ pays monthly dividends. In 2024, it paid an average monthly dividend of 45.36 cents. To earn $1,000 monthly from this ETF, you would need to hold 2,204.59 shares. At a share price of $52.19, that would require a $115,057.55 initial investment.
Dividend Consistency: A More Important Factor
Notice that the two strategies above have assumed that the company will at least pay the same dividend as it did in the past. This is not a given, however, as the company can pay lower dividends or even stop paying anything. For example, while SEA paid dividends in 2024, it did not pay out in 2023.
Therefore, if you are looking to consistently earn $1,000 per month, you should be focusing on dividend ETFs that consistently pay dividends.
Morningstar has an index (called the Dividend Leaders Index) that tracks 100 stocks with the highest dividend yield from a list of stocks that have consistently paid dividends and possess the capacity to keep it up.
First Trust Morningstar Dividend Leaders Fund (FDL) tracks this index. This ETF had a dividend yield of 4.69% at the time of writing and paid an annual dividend (quarterly) of $1.70 in 2024. To earn $12,000 in annual dividends, you would need to hold 7,058.82 shares of this ETF. At a share price of $43.74, this translates to an initial investment of $308,752.79.
Dividend Consistency and Growth: How to Get the Best Value
A better approach is to focus on stocks that both pay dividends consistently and increase their dividend payout regularly (known as dividend growth stocks).
These can be Dividend Aristocrats (S&P 500 companies that have increased their dividend payout every year over the past 25 years), Dividend Kings (companies of all market caps that have increased their dividend payout over the past 50 years) or Dividend Achievers (firms that have increased their dividend every year for the past 10 years).
[SEE: 9 Highest Dividend-Paying Stocks in the S&P 500]
Among the dividend growth ETFs (ETFs that invest in dividend growth stocks), FT Vest S&P 500 Dividend Aristocrats Target Income ETF (KNG) has the highest dividend yield, at 8.81% as of mid-March.
KNG pays monthly dividends; in 2024, it paid an average monthly dividend of 38 cents. To get $1,000 every month, you would need to purchase 2,631.58 shares of this ETF. At a market price of $51.47, this will require an initial outlay of $135,447.42.
Active: How to Earn $1,000 Per Month From Dividend Stocks
If you are an active investor, you want the freedom to do your research and select your stocks. In this case, the focus is on individual stocks rather than ETFs.
The simplest approach is to find a list of the dividend stocks with the highest dividend yield, select those you want from among them, decide what portion of the $1,000 you want to receive from each of them, and then calculate the initial outlay required.
For example, let’s say you want a portfolio of five stocks. In mid-March, Icon Energy Corp. (ICON) (237.76%), B. Riley Financial Inc. (RILY) (44.84%), Generation Income Properties Inc. (GIPR) (28.71%), Cato Corp. (CATO) (25.56%) and Icahn Enterprises LP (IEP) (21.79%) had the highest dividend yields.
If you want $200 monthly from each, then the initial outlay and the number of shares are as follows:
— Icon Energy. It paid an annual dividend of 17 cents in 2024. To receive a $2,400 annual dividend, you will need 14,117.65 shares, for an initial outlay of $2,082.35 at a share price of 14.75 cents.
— B. Riley Financial. In 2024, it paid an annual dividend of $1. To receive $2,400, you will need 2,400 shares, for an initial outlay of $10,680 at a share price of $4.45.
— Generation Income Properties. GIPR paid an annual dividend of 23 cents in 2024. Earning a $2,400 annual dividend income would require 10,434.78 shares. At a share price of $1.63, the initial investment needed is $17,008.69.
— Cato Corp. CATO paid 51 cents in dividends in 2024. Earning a $2,400 annual dividend income would require 4,705.88 shares. At a share price of $2.66, the initial investment needed is $12,517.64.
— Icahn Enterprises. IEP paid $3.50 in dividends in 2024. To receive a $2,400 annual dividend, you will need 685.71 shares, for an initial outlay of $6,294.82 at a share price of $9.18.
In all, you would need an initial outlay of $48,583.50. This is lower than anything we calculated using the passive investing strategy.
What About Diversification?
Active investors also seek diversification to reduce portfolio risk. If you are such an active investor, you can modify the approach above in three ways:
First, you can expand the list to include the top 10 or 15 dividend stocks by dividend yield. Second, you can choose the stock with the highest dividend yield in each sector so that the result will be well diversified. Third, you can try to achieve broader diversification by identifying large-cap, mid-cap and small-cap stocks with the highest dividend yields and then filtering the list so that all the major sectors are represented.
Let’s demonstrate how that second approach would work. The following were the dividend stocks with the highest dividend yield in 10 popular sectors in mid-March:
— Finance: Generation Income Properties
— Transport: Icon Energy
— Retail trade: Cato Corp.
— Energy minerals: Icahn Enterprises
— Consumer services: FAT Brands Inc. (FAT)
— Consumer non-durables: Natural Health Trends Corp. (NHTC)
— Technology services: TTEC Holdings Inc. (TTEC)
— Industrial services: Delek Logistics Partners LP (DKL)
— Electronic technology: Methode Electronics Inc. (MEI)
— Producer manufacturing: Highway Holdings Ltd. (HIHO)
If you want to earn equal amounts of dividends from each, that will require a monthly dividend of $100 per month, or $1,200 per year. Using the format above, you can derive the initial outlay required for each stock (based on 2024 annual dividends and current stock price) and sum them up.
Dividend Consistency: A More Important Factor
One way to factor in dividend consistency to your selection is to look at the individual constituents of the Morningstar Dividend Leaders Index, filter them based on dividend yields, decide on the number of stocks you want in your portfolio, and select them in descending order from the filtered list.
As of the time of writing, the top 10 stocks by dividend yield in this index are:
— Altria Group Inc. (MO): 6.9%
— Pfizer Inc. (PFE): 6.4%
— Verizon Communications Inc. (VZ): 5.9%
— United Parcel Service Inc. (UPS): 5.4%
— T. Rowe Price Group Inc. (TROW): 5%
— Eversource Energy (ES): 4.9%
— Chevron Corp. (CVX): 4.3%
— CVS Health Corp. (CVS): 4.1%
— Philip Morris International Inc. (PM): 3.6%
— AbbVie Inc. (ABBV): 3%
Notice that none of the stocks with the highest dividend yield (Icon Energy, B. Riley Financial, etc.) make this list. This shows why dividend consistency should be a concern for the dividend investor. It’s not enough to provide a high dividend yield in one year; it is the ability to do it consistently over the years that matters.
Once you have the list, the rest of the process is just as before: Determine what portion of the $1,000 monthly dividend you want from each stock, calculate the initial outlay required for each stock, and sum up the initial outlay for all the stocks in the portfolio.
Dividend Consistency and Growth: How to Get the Best Value
The first step is to decide if you are focusing on Dividend Aristocrats, Dividend Kings or Dividend Achievers. Once you have selected one, identify all the stocks in the list, filter them based on dividend yield, determine the number of stocks you want to include and then select from the filtered list in descending order.
Let’s focus on Dividend Aristocrats to exemplify this process. There are about 66 stocks across 10 sectors in this list. The top 10 by dividend yield at the time of writing are as follows:
— Franklin Resources Inc. (BEN): 6.4%
— Realty Income Corp. (O): 5.5%
— T. Rowe Price: 5%
— Amcor PLC (AMCR): 5%
— Eversource Energy: 4.9%
— Federal Realty Investment Trust (FRT): 4.4%
— Chevron: 4.3%
— Archer-Daniels-Midland Co. (ADM): 4%
— Target Corp. (TGT): 3.9%
— Hormel Foods Corp. (HRL): 3.8%
Again, you can complete the process by determining what portion of the $1,000 monthly dividend income you want to get from each stock, calculating the initial outlay for each stock, and summing them up to get the overall required investment.
Takeaway
The research above should provide some general approaches to earning $1,000 per month from dividend stocks for both passive and active investors. However, since the financial situation of one investor is not the same as another, you will need to take this information and then discuss the best approach to implement with your financial advisor.
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How to Earn $1,000 Per Month From Dividend Stocks originally appeared on usnews.com
