How to Live Off Dividends?

How to live off dividends? Asked by many newbie dividend stocks investor. To live possibly and realistically live off dividends, an investor must be aware of the cash dividends he should earn every year consistently. Living on dividends without much effort on investors part is quiet interesting. How dividends work and is it realistic to live off dividends? We will discuss these dividends frequently asked questions in today’s topic. First of all, I am also a dividend investor. I am accumulating dividend stocks regularly every month. And when I have extra funds, I put the investment funds in divided stocks. Dividends stocks are ways to earn money passively. That means, you just invest (buy dividend stocks), and the money will come in. But there are risk you must consider before investing in dividend stocks. Don’t just look for passive income, but also know the risk associated especially when a company is paying stockholders a large amount of dividends.

What are dividends & how does it work?

Dividends are distribution of company earnings by cash or stock to every qualified stock holders every month, every quarter, or per annum. Dividends serve as a reward for the stock holders holding the company stock. The dividends an investor can earn will depend on the company earnings.

How Much Money You Need to Live Off Dividends

Now let us answer how much money do an investors really need to life off dividends. In order for an investor to live on stock dividends alone, he must have a reasonable amount of dividend stocks equity that earns enough dividends to cover all his monthly or annual expenses.

There’s no exact percentage to earn from your dividend stocks equity. But the rule of thumb is at least 4% per annum therefore. If you want to earn $100,000 per annum, you need $2,500,000 dividend stocks equity.

Here’s the sample computation;

Dividend Stocks Equity X 4% = Annual Dividend Earnings

Calculating Dividend Stocks Equity to Live Off Dividends

You only need small amount of dividend stocks capital if the cost of your lifestyle is simple. Say for example, if you are only spending $2,000 per month or $24,000 per year. That means you only need $600,000

Or the best part and when you found a good company and earn 8% to 10% per annum, then you only need $240,000 (for 10% earnings per year).

Maybe you asked, how to make $1,000 a month in dividends. To make $1,000 a month in dividends, we will use the same formula.

$1,000 X 12 months = $12,000 per year

Therefore, if 4% is the rule of thumb, then an individual who wants to make $1,000 a month, he needs $300,000

When investing in dividends, don’t get attracted to high dividend yield. It’s better to earn at least 4% consistently from a solid company than earning high dividend yield and suddenly that stock price went down. Your dividend earnings will only be worthless if stock price is not appreciating.

Let’s see this example scenario;

• Stock Price: $50
• Dividend Annual Yield: 17%
• Capital Required to Earn $1,000 Per Month: $70,588 only

In this scenario you bought 1,420 or more company stock and you spend $70,588 or more. Then suddenly the company stock price went from $50 down to $12 per share. What do you think will happen to your overall portfolio?

How to know the dividend yield of a company stocks?

You can use financial news website, find company and look for dividend earnings.

Dividends are nonsense if you buy dividends  shitty company stocks attracting people from their high yield dividends, but at the end, the stock price is in danger. Therefore, it’s very risky. Try to mitigate this risk buying blue chip stocks with proven record with at least reasonable amount of dividend yield, say 4% is enough.

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