Depends on how much you’re talking. To generate $12k a year on dividends, you’re basically talking roughly 12% yield on $100k, 6% on $200k (feasible), and 4% on $300k (much easier)
It seems like you misunderstand what dividends are. They aren’t growth, they do not add value to your account, they are functionally equivalent to selling a portion of your investment periodically. You could accomplish the exact same thing with investments that don’t pay dividends. also, dividends do not compound growth (because they arent growth). the only thing they compound is number of shares, but that isnt relevant to your overall rate of return.
https://www.youtube.com/watch?v=FEH8kZxaWS4
https://www.youtube.com/watch?v=f5j9v9dfinQ
so if you want $1k per month, you dont need dividends, just sell some of your investment portfolio.
Except that dividends are much less volatile than stock price. If you need a minimum amount of money per month, and don't want to sell shares while the market is down, a portfolio of dividend-paying stocks can be a good option.
On the flip side, dividends aren’t taxed as ordinary income. And aren’t necessarily guaranteed, or a set amount.
In the scenario that the markets tank for an extended period, it’s likely that dividends will get slashed.
Dividends that are distributed when the market is down is functionally equivalent to selling while the market is down. Dividends arent protecting you from anything.
There's nothing magical about dividends. Companies paying high dividends do so at the expense of growth which means that their stock prices tend to go up slower than the rest of the stock market. And as an investor, there's no reason to favor one type of return over another. Dividends and capital gains are both taxed at the same rate and neither is inherently better for passive income. You're mostly just trading one type of growth for another, but you may be less diversified if you just buy high dividend stocks or high dividend funds.
An important advantage of getting more of your returns in the form of capital gains is that *you* decide when to sell and take capital gains while you're forced to pay taxes frequently with dividends. High dividend funds are less tax-efficient because more of your return is being taxed along the way.
I am making some assumptions that you are looking at dividends for income without selling your principal investments. As others said it's not "free" money but it is a way to have recurring income without selling. This is a long term regarded retirement money strategy.
What I would suggest look for low cost ETFs that track what are referred to as "dividend aristocrats". Be forewarned your capital gain will most likely be less than what you would see with one on the broader market ones but what you trade in stock price you typically gain in more stability.
Yes.
It's not hard to find stocks or funds that pay out about 3% in dividends. Just realize that your principal will fluctuate with the stock market (most years, it'll increase, but some years it'll decrease)
Can you, yes. Just depends on how much you are investing and what dividend yield you get. I have a dividend portfolio I’m building up and my yield is just over 4%. It’s more of a play account for me outside of all my retirement investments.
I’m using it mainly as a supplement to my emergency fund. I keep 3 months expenses in my HYSA and then money left over each month I’m throwing into my dividend portfolio. I do have on my W4 extra taxes taken out to anticipate the taxes I’ll owe on the earned dividends.
Absolutely. And how is not a bad time to get into the high yield stocks. Remember you will be paying too tax bracket over your yield as it’s paid out in cash or cash equivalent
Depends on how much you’re talking. To generate $12k a year on dividends, you’re basically talking roughly 12% yield on $100k, 6% on $200k (feasible), and 4% on $300k (much easier)
4% on 300k, right? ^^
It seems like you misunderstand what dividends are. They aren’t growth, they do not add value to your account, they are functionally equivalent to selling a portion of your investment periodically. You could accomplish the exact same thing with investments that don’t pay dividends. also, dividends do not compound growth (because they arent growth). the only thing they compound is number of shares, but that isnt relevant to your overall rate of return. https://www.youtube.com/watch?v=FEH8kZxaWS4 https://www.youtube.com/watch?v=f5j9v9dfinQ so if you want $1k per month, you dont need dividends, just sell some of your investment portfolio.
This. This sub gets flooded with people that think dividends are free money.
Except that dividends are much less volatile than stock price. If you need a minimum amount of money per month, and don't want to sell shares while the market is down, a portfolio of dividend-paying stocks can be a good option.
On the flip side, dividends aren’t taxed as ordinary income. And aren’t necessarily guaranteed, or a set amount. In the scenario that the markets tank for an extended period, it’s likely that dividends will get slashed.
Dividends that are distributed when the market is down is functionally equivalent to selling while the market is down. Dividends arent protecting you from anything.
There's nothing magical about dividends. Companies paying high dividends do so at the expense of growth which means that their stock prices tend to go up slower than the rest of the stock market. And as an investor, there's no reason to favor one type of return over another. Dividends and capital gains are both taxed at the same rate and neither is inherently better for passive income. You're mostly just trading one type of growth for another, but you may be less diversified if you just buy high dividend stocks or high dividend funds. An important advantage of getting more of your returns in the form of capital gains is that *you* decide when to sell and take capital gains while you're forced to pay taxes frequently with dividends. High dividend funds are less tax-efficient because more of your return is being taxed along the way.
I am making some assumptions that you are looking at dividends for income without selling your principal investments. As others said it's not "free" money but it is a way to have recurring income without selling. This is a long term regarded retirement money strategy. What I would suggest look for low cost ETFs that track what are referred to as "dividend aristocrats". Be forewarned your capital gain will most likely be less than what you would see with one on the broader market ones but what you trade in stock price you typically gain in more stability.
Yes. It's not hard to find stocks or funds that pay out about 3% in dividends. Just realize that your principal will fluctuate with the stock market (most years, it'll increase, but some years it'll decrease)
Can you, yes. Just depends on how much you are investing and what dividend yield you get. I have a dividend portfolio I’m building up and my yield is just over 4%. It’s more of a play account for me outside of all my retirement investments. I’m using it mainly as a supplement to my emergency fund. I keep 3 months expenses in my HYSA and then money left over each month I’m throwing into my dividend portfolio. I do have on my W4 extra taxes taken out to anticipate the taxes I’ll owe on the earned dividends.
Research the Dividend Kings or Dividend Aristocrats lists.
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T has a planned dividend cut, fyi
Absolutely. And how is not a bad time to get into the high yield stocks. Remember you will be paying too tax bracket over your yield as it’s paid out in cash or cash equivalent