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What if you could take ,000 and invest it in the stock market … and in return … you were (almost) guaranteed to earn $100 in income annually from that investment. Would you take advantage of it?
I know that I certainly would be interested in earning a 10% return on investment every single year on my money.
You may be thinking there must be a ton of risk involved with that type of investment. But what if that $100 of income every single year on a $1,000 investment comes with very little risk? Would you take advantage of an investment like this?
Well just over 9 years ago, that is just what my wife and I did … although we didn’t realize the return we would be getting at the time.
Yep, almost a decade ago (less a year), my wife and I invested just under $1,000 in a dividend stock that today earns us at least $100 per year in dividend income.
That is a crazy return I know!
This shows the true power of investing in quality dividend stocks as a sustainable income stream.
Our $1,000 Investment in a Dividend Stock
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I have said it here already many times … one of the most sustainable income streams that you can build is through investing in dividend stocks.
And not just any dividend stock … but rather those that have a history of consistently raising dividends year after year for decades. These are the stocks that raise dividends for 10 years, 20 years, and some even 50+ or more.
These are the companies that give you a raise every single year … for doing nothing … other than owning their stock and staying loyal.
So almost a decade ago, we decided to plant our first seed for our dividend income portfolio by investing $1,000 in a company called Consolidated Edison (ED). We took our hard earned dollars and purchased 25 shares of the stock.
At the time, the company had consistently been raising dividends for 34 consecutive years.
Over the next 9+ years, we have watched that investment grow and compound every year. And over the past year … those compounded earnings have resulted in a $100 income stream … that will continue to grow higher and higher.
And 9 years later … the company’s streak for raising dividends is now up to 43 consecutive years!
Earn $100 per Year in Dividend Income
Over the past 4 quarters, we have earned a total of $100.23 in dividend income from the shares of Consolidated Edison. While it took 9 years of slowly growing our shares in the company … it is an awesome feeling knowing we are earning over 10% on our investment each year!
Here are the dividend payments we have received over the past 12 months –
- September 2016 – $24.35
- December 2016 – $24.57
- March 2017 – $25.54
- June 2017 – $25.77
Total Annual Income – $100.23
As we continue to reinvest our dividends in ED stock and assuming the company continues to raise it’s annual dividend … this $100 will continue to compound and grow!
Watch a $1,000 Investment Compound and Grow
Since purchasing 25 shares of Consolidated Edison 9 years ago, we have collected 36 dividend payments. Each dividend has been reinvested back into additional shares of stock for an extra 12.66 shares.
Our initial investment with commission was $977.50 for the 25 shares of ED stock. That comes out to an average share price of $39.10.
- Total Investment – $977.50
- Initial Shares Purchased – 25.00
- Average Purchase Price – $39.10
In 9 years, we received 36 dividend payments for a total of $703.38 in dividend income. So we have earned back an amazing 72% of our initial investment ($977.50) just in dividends!
As long as the company does not make any dividend cuts anytime soon, we should earn back our entire investment within the next 3 years. That is such an awesome feeling knowing our initial investment will have eventually paid for itself. And hopefully continue generating more and more income as each quarter passes.
- Yield on Cost – 10.63%
- Dividend Income – $703.38
- DRiP Shares – 12.66
Two Ways to Grow Net Worth with Dividend Stocks
Earning back over 70% of our initial investment in dividend income shows the power of buying and holding quality companies. In less than 3 years from today … we will have likely surpassed our total investment, just in dividend income!
And each time we receive one of those dividend checks (or in our case DRiP shares) … our net worth grows little by little.
But earning income isn’t the only way our net worth will grow from owning quality dividend stocks. In almost all cases, if a company is consistently raising dividends every year … it is very likely their share price will increase over time.
So in our case with the Consolidated Edison investment, we initially purchased 25 shares for $977.50 or $39.10 per share. Over the course of 9 years and 36 dividend payments, we have added an extra 12.66 shares (at no extra cost) for a total of 37.66 shares.
In reality … we paid $977.50 to own 37.66 shares of ED stock, which gives us a yield on cost of 10.63%. That averages out to $25.95 per share we have paid.
At the time of this writing, shares of ED were trading around $80.25. That is an increase in price of approximately $54.30 per share.
If we were going to sell all of our 37.66 shares of stock today, then our total profit would be $2,044.94. That is more than a 100% return on our investment!
Note – The total profit noted above is just an estimate and not guaranteed until all our shares are sold. We have no plans at this time of selling any of our ED shares.
5 Tips to Earn $100 per Year in Dividends on a Stock
It is important to note that not every dividend stock is created equal. We were fortunate to start our dividend portfolio back in 2009 with a quality company that has continued to pay us more every year.
A portion of these increases came from reinvesting our dividends, while the other portion has come from company dividend increases.
And even though we have had success … things could have gone much different if we didn’t follow the rules listed below.
If you are just starting out on your journey, please consider these 5 tips to get you started in earning $100 per year from a dividend stock.
1. Have Long Term Vision
If you are looking for a way to get rich quick, this is certainly not for you. Building wealth through dividend stocks takes years and decades to accomplish.
As you can tell from our example earlier … we have been holding onto our 25+ shares of Consolidated Edison for over 9 years. And during that time, we have grown our total shares to over 37+. This is a result of being patient and focusing on the long term.
The longer you can remain in a stock, the more time it has to compound quarter after quarter and year after year. Looking back … Consolidated Edison was never this awesome growth stock that would grow by double digits every year. And today, we wouldn’t even buy new shares based on some of the metrics of the company.
However, back in 2008, it was a decent investment and has rewarded us for our patience. Unless that company decides to decrease their dividend … we have no plans (at this time) to ever sell this stock. The same can be said for the other 30+ stocks that we currently own.
2. Invest in the Best
You are doomed to create a $100 income stream by investing in poor dividend stocks. There are tons of companies that pay out a dividend … but many of them are inferior to the ones you need to be focusing on.
Some of these “bad apple” stocks look great on paper and have really high yields. However, most of these types of stocks should be avoided as the dividend is not sustainable.
Instead of focusing just on dividend yield, look for other factors including – dividend payout ratio, dividend growth rates, P/E ratios, and number of consecutive years of dividend increases.
You can follow along our stock screening criteria if you are looking for a place to start.
3. Don’t Panic
As a dividend income investor, you will need an exit strategy on when to sell a stock. For example, our exit strategy to sell a stock is when a company makes a dividend cut.
We have sold 2 different stocks over the years when this happened – ConocoPhillips (COP) and BHP Billiton Limited (BHP). Otherwise, we have stood still when it comes to selling stocks from our portfolio. The only exception is when our LOYAL3 account was closed.
Overall, in the 9+ years of building our dividend income portfolio, we have not panicked and sold stocks because of the market. Instead, we have tried to use any downturns to buy dividend stocks at a discount.
If you are investing in quality dividend stocks … there is really no need to panic.
The example I shared is just 1 of 13 stocks we own that is generating $100 or more of dividend income for us every year. We even have 2 stocks that are earning us over $200+ in dividend income each year.
In total we have 30+ dividend stocks (at the time of this writing) that are collectively going to generate over $2,400 in income just this year (2017).
So while we have had great success buying and holding onto our Consolidated Edison stock over the years, we made sure to spread our investment dollars across many companies.
A diversified dividend portfolio of 20 to 30 stocks spread across multiple sectors can provide sustainable income.
What is the right number of stocks to own? It likely depends on the stage you are at with building your portfolio. But at a minimum, you should start with 6 to 10 stocks in our opinion and build from there.
5. Start Early
As you can see from the example above, we have had great success with our investment of 25 shares of Consolidated Edison over 9 years ago. We have earned back 72% of our initial investment just in dividend income … not to mention capital gains increases.
And while those returns are fantastic … it still took almost a decade for the dividend increases to compound into a $100 per year income stream.
My biggest regret when it comes to dividend investing is … not starting sooner. If I could go back in time, I would have started when I was 18 … not in my mid-30’s!
This is one lesson that I am trying to pass down to my 3 children … to start investing when you are young. In fact, we just setup a custodial account through Stockpile for each of our kids to get started building their dividend income portfolio.
Earn $500 or Even $1,000 per Year from a Single Stock
I envision a day where we have several stocks that have paid for themselves through dividends. Even where a single stock pays us $500 or even $1,000 in dividends every year.
But in order to get to that point, we need to continue focusing on the long term. Staying patient with our stocks and only selling when a dividend cut is made.
And most importantly … we need to only invest in the best of the best dividend stocks while staying diversified.
Do you own any dividend stocks that have paid for themselves already from income earned?
2 Replies to “How to Earn $100 Every Year on a $1,000 Investment”
I think the exit strategy is key. I’d feel more comfortable if I had a solid strategy rather than a wishy washy idea of when I’d get away from a stock. We’re very interested in dividend stock, too. Some day we’ll be out of debt and can do this!
@ Jamie – Best of luck getting out of debt! As far as an exit strategy, ours is very simple when it comes to dividend stocks – sell when a company makes a dividend cut. Other than that, we do most of our screening before buying the stocks and don’t have to worry or stress about what the overall market is doing.