Generating passive income through dividends is especially important these days, as the stock market has had negative returns for the better part of the year now. But perhaps it’s even more important in retirement, when that extra income can come in handy. It can definitely give you some money to spend to supplement retirement accounts or Social Security checks.
Here are three steps to earning about $300 per quarter, or $100 per month, in dividend income.
Step 1: Find high-yield stocks with stable dividends
Dividend yield is the percentage of the stock price that a company pays in dividends. The average dividend yield for the S&P 500 is around 1.7% right now. In general, the yield that exceeds that is considered very good. To determine if a dividend is sustainable, the payout ratio – the percentage of dividends used to pay dividends – must be less than 50% in most cases.
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Often Best Dividends They are those of large, well-established firms that are among the leaders in their industries. Many of these companies have stable profits and a commitment to maintain or increase their profits. A good place to look for these stocks is on the Dividend Aristocrats list, which are companies that have increased annual dividends at least 25 years in a row. It’s not the only source, but it’s definitely a good place to start.
Step 2: Build your portfolio of dividend stocks
So, with these metrics in mind, the next step is to develop a portfolio of stocks that are poised to generate consistent, high-return passive income in retirement. For the purpose of this assumption, let’s extract from a list Distributed Aristocrats And identify some solid dividend stocks.
One is the asset manager T. Rowe Price Group (NASDAQ: TROW), which has a return of 3.99% and a quarterly dividend of $1.20, with a payout ratio of 36%. It has increased its profits for 36 consecutive years. Another company is the pharmaceutical company Abvi (NYSE: ABBV), which has a return of 3.75% and a quarterly dividend of $1.41, with a payout ratio of 42%. AbbVie has increased its dividend for 50 consecutive years.
Each of these stocks have above-average returns, manageable payout ratios, and a long history of supporting their dividends, as well as being leaders in their industries. It should also be noted that AbbVie is up 12% year-to-date and has posted an average annual return of 16% over the past 10 years. T. Rowe’s price is down 40% since the start of the year, but all asset managers are struggling in this bear market. However, T. Rowe Price has generated an average annual return of 7% over the past 10 years and has virtually no debt, making it a reliable dividend payer.
Step 3: Make a plan
If your idea is born passive income When you retire, it’s important to have a strategy for getting there. How much do you need to invest in these stocks to make a significant portion of the income? Let’s say you invest $15,000 in both of these stocks. T. Rowe Price is trading at around $117 per share, so you can buy approximately 130 shares for just over $15,000. AbbVie is trading for $153 per share, so you can get 98 shares for as little as $15,000.
For T. Rowe Price, 130 shares at $1.20 per share would generate approximately $156 per quarter, while for AbbVie, 98 shares at $1.41 per share would earn approximately $138 per quarter. That calculates to about $294 per quarter, and $98 per month.
Keep in mind that these stocks will also generate increased capital, not just dividends, so that the investment grows over time. T. Rowe Price has posted an annual return of 7% for the past 10 years, while AbbVie has posted an average annual return of 16%. So, you are not only getting passive income, but you are also getting solid returns that you can utilize when you need it.
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