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In less than 3 weeks, when the last of our October dividends comes in, we will have officially earned over ,000+ in dividend income this year. The good news is that we still will have 2 more months remaining in the calendar year, which should put us closer to $2,500 in dividend income.
This will be the first year (2017) that we have earned over $2,000 in dividends for a single year. Last year, we came close but fell short by about $80.
It was just 3 short years ago (2014) when we came very close to earning $1,000 in dividend income. Every year since, our dividends have grown by over 20% year to year. Next year, we plan to break the $3,000 per year in dividend income mark!
For all of you new dividend investors out there … you may be wondering what it takes to break the $2,000 annual dividend income threshold?
What is so Special about Earning $2,000 in Dividend Income
Honestly … not all that much. There is nothing significant with the $2,000 figure. But it is another threshold to hit. And it is double that threshold we couldn’t hit just 3 years ago!
But what is important is that $2,000 of dividend income earned is sustainable (more than likely). If invested properly, the following year that $2,000 will come in again without you doing anything.
Hopefully you decide to reinvest that $2,000 back into more stocks and you grow your future income potential.
That $2,000 is almost all passive in nature and nobody can take it away. Of course, things do happen and dividends get cut. Which is why following a plan at the start is critical to your success.
You must start by picking only the best of the best dividend stocks to invest your hard earned dollars.
How to Reach $2,000 in Dividends per Year
Calculating how to reach $2,000 in dividends for a year is quite simple really. As long as you are investing in top dividend paying companies, there is a very good chance of success. And of course, it is always important to diversify across multiple stocks when building a dividend income portfolio.
The first step to take when building a $2K dividend income stream is to select a few of the best companies that have had a history of raising annual dividends. We try and look for companies that have raised dividends for at least 10 straight years … most of the time.
We use an 8 step process for screening top dividend paying stocks, which has a step built in for filtering on dividend history. Other investors have used lists of stocks like the S&P Dividend Aristocrats index. Companies included on that list have had a history of raising dividends every single year for at least 25+ years!
Once you find a list of companies that have a solid history of raising dividends annually, the next step is to narrow down the list with companies offering a fair yield. We try and pick companies that have a yield of at least 2.0% or higher. We typically don’t pick any stocks however that have yields over 5.0% … unless they are a REIT.
We also look for other factors for top dividend stocks like a P/E ratio less than 20 and a Payout Ratio less than 60. All of these steps are found in our stock screening process (link above).
After you have narrowed down your list of potential stocks, the next step is to calculate how much money you will need to invest to raise $2,000 in annual dividends.
For example, let’s assume we are picking stocks with a current yield of 3.0% or higher. The calculation to figure out how much you need to invest would look like this –
[code]Investment Amount X 3.0% = $2,000 Annual Dividends[/code]
By dividing the annual dividends by our current yield, we can estimate that it will take $66,667 of capital to earn $2,000 in annual dividends.
[code]$66,667 X 3.0% = $2,000[/code]
Running a quick screen of actual stocks, we found a few good companies (not as many as in previous years) out there currently offering a yield above 3%. For example, Archer Daniels Midland (ADM) at 3.01% and Altria Group (MO) at 4.16% have both been raising dividends each year for over 40+ consecutive years.
Note – The current yields noted above for ADM and MO are a point in time and are now out of date by the time you read this.
So in order to earn $2,000 in dividends by purchasing shares in Archer Daniels Midland or Altria Group, you would need between $48K to $66K of money to invest.
[code]ADM = ($2,000 / 3.01%) = $66,445[/code]
[code]MO = ($2,000 / 4.16%) = $48,077[/code]
Note – I am not recommending purchasing all your shares in one stock alone to build this type of income stream. It is important to diversify your portfolio with many quality dividend paying stocks. In this case, I would try and pick 10 stocks and invest equally across your $50,000 to $60,000 investment.
Investing One Month at a Time
By now, you are probably thinking, I don’t have an extra $50,000+ lying around ready to invest. You are certainly not alone.
That is why it may be easier to build $2,000 in dividend income by investing one month at a time.
Heck, it took my wife and I almost 10 years of investing to pass the $2,000 threshold. And the first couple of years we had no clue what we were doing! We started off slow and only invested $2,000 a year or less in dividend stocks.
The past 3 years however, we have picked up our investments to over $10,000 per year.
How We Grew Our Dividend Income to $2,000 per Year
So enough about the hypothetical scenarios listed above about building $2,000 in dividend income. Below are details on how we built our dividend income stream that will bring in close to $2,500 this year.
- # of Stocks we Own – 32
- Total Investment – $62,300~
- Yield on Cost – 4.45%
- Est. Dividend Income this Year – $2,500
- Est. Dividend Income next Year – $3,000
- 12 Month Forward Dividend Income – $2,770
It took us almost 10 years to build this type of income. Certainly not ideal, but it is sustainable income that will likely never go away.
If we were to start all over again, I am certain we could build this type of dividend income up in 4 years or less.
Are you building an dividend income portfolio? What annual dividend income thresholds have you passed recently … $100? $500? $1,000? $5,000? $10,000? or more?
Full Disclosure – At the time of this writing, we owned shares in the following stocks noted in this post – ADM, and MO. The material above is not a recommendation to buy. Please do your own research on a company before deciding to invest.