How much money do I need to generate $1500 per month in dividends for the rest of my life?

Question

I am 29 years old. I do freelance work and I can save around $500/Month from that.

In my country, $1500/month is more than enough to cover all living/health/entertainment expenses for me and possibly for my future family and should be the case for years.

I am 80% sure that $1500/Month will still be enough for a family to live on in 2040. I don't care about the stock's value. I only care about living off the dividends and never touching the principal. Maybe my kids will be able to live off it too.

I want to retire after I save the sum of money needed to generate $1500/month in dividends. My question is how much money is that?

Answer 1

One practical solution is to invest in an ETF like DGRO. Currently it is yielding 2.29%, so to live off of divdends, you have:

(1500*12) / .0229 = 786,000.

At $500/month, you have some work to do.

Answer 2

That depends, what will you be investing in for dividends? Will it be a mutual fund/index fund/ETF that will produce a 0.5%-3% dividend? Possibly a bond fund that will give ~2% in dividends? Will it be energy/oil stocks that can give anywhere from 2%-7%? How about REITS that can give anywhere from 2%-8%? That all depends on you, but I will set up the equation for you. Assuming you want a 4% dividend per year (a fairly healthy dividend rate for a portfolio), with $1500/month payout (on average since dividends usually pay out quarterly) you will be looking at:

($1500/month * 12 month) / 0.04 = $450,000 total invested

here is the general form of the equation:

payout_per_month * months_in_a_year / dividend_rate = total_invested

EDIT It also looks like you asked a similar question here. Why not use the same logic and edit it to be $1500 instead of $1000?

Answer 3

While dividends are cash flow rather than income, it's somewhat different with preferred stocks since they are a hybrid security, leaning more toward fixed income.

The bulk of them are issued at $25 and are callable in 5 years at the discretion of the issuer with a maturity date which can be decades or even never (perpetual).

There are three primary risks.

The first is the quality of the issuer which is fairly easy to achieve. Only buy investment grade issues. Don't buy junk (C or lower).

The second is longer term interest rates. Preferred stocks behave like bonds and move inversely to rates. They may over react to Fed fund rate increases but they tend to recover from that in a reasonable amount of time. A perfect example of this occurred in the latter half of 2018 when preferred stocks were whacked as rates rose. They've risen more than 10% since then even though rates only dropped modestly. This behavior would be irrelevant since you indicated that you don't care about share price value.

Lastly, most preferred are callable in 5 years. When called, if rates are lower, you won't be able to replace your higher income positions and your yield will drop. Warning: Don't buy preferreds that are significantly above par and are callable in a year or two.

To answer your question more specifically, investment grade U.S. preferred stocks currently pay about 5.6%. To generate $1,500 a month, you'd need about $321k, even more if you have to pay taxes on the dividends and you want $1,500 per month after taxes.

And while trading appears to be the bane of this board, you can bump that 5.6% yield up several percent by occasionally swapping out appreciated issues. Even more than that when there's an interest rate cycle, something we haven't seen for more than a decade.