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There are millions of ways to earn passive money, and now we are discussing how could you earn $2000 from dividends monthly. We are going to review different instruments and ways to earn this, what are the differences between these instruments, what you should focus on and examples of these options so you could be informed to take advantage of dividends.
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1. What are Dividends?
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One of the ways to to Earn $2,000 in Dividends Monthly is by dividends.
A dividend is a distribution of profits by a company to its shareholders. When a company earns a profit or surplus, it is capable of paying a proportion of the profits as a dividend to shareholders.
Each company makes a decision if they want to distribute their profits or they will reinvest this profits into the business. This decision will depend on the profits that the company could have made in the year, the industry trends, the available funds of the company, the available investment opportunities, and if the company had a previous dividend history.
You have to take into account that when a company pays dividends to its shareholders it may have an impact on the stock value of the company as it is taking the profits and distributing them, that means if the company distributed fewer profits or none at all the stock price would have been higher. Also take into account that distributing the profits, the company is diminishing the capability of expanding or developing new projects.
The company must keep up with industry trends, because if everyone is distributing dividends but not your company, then the investors could liquidate their holdings and look for more profitable companies (This could benefit their competitors directly).
The indicators you should be looking for when thinking of dividends are :
- Dividend Yield
A dividend yield is an annual ratio of the company’s dividend payout relative to its share price.
- Dividend Payouts
A dividend Payout is an indication of how a company pays its dividend as a part of its net earnings.
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2. Making a plan, what is going to be your objective?
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The first step of the plan is the objective, you have to choose what is going to be your personal financial goal, in this case, we are proposing a monthly income of $2,000 which you could obtain either from stocks or REITS in the form of dividends.
Basically what we are looking for here is how many dividends we want to receive and the amount that we are going to invest to obtain that dividend, therefore we have to define the dividend yield of the stocks or REITs that we plan to use.
There are some differences between the dividend yield of a REIT and the ones from a stock. REITs are obligated to distribute 90% of the taxable income to their holders every quarter, therefore it’s dividends tends to be much higher than the dividends of stocks, but at the same time, the tax you’ll have to pay is going to be at your income taxes (not as capital gain tax), so that can elevate your tax contribution higher than the capital gain tax.
On the other hand, stock dividends get taxed twice, first on the income of the company itself, and then as capital gain ranging from 0 to 20%.
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3.What is going to be your dividend target?
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As we were discussing at the beginning of this post, dividends are a distribution of profits, therefore their distribution affects directly the stock price.
Some stocks have already that dividend distribution incorporated in the price, but others just affect downward the stock price.
3.1 What is going to be the dividend yield of the stocks/REITS that we will be aiming for?
The definition of dividend yield is the annual amount of dividends paid by a company divided by the company’s stock price, for example, Apple (NASDAQ: AAPL) has a dividend yield of 0.55%, and its stock price is $161.02 (11/22/2021), meaning that it will pay $0.88 annually for every stock.
161.02 * 0.55% = $ 0.88
In this case, if you were going to earn $2,000 monthly in dividends from AAPL, you need to have 27,273 stocks, whose price is $4,391,454.54.
$2,000 x 12 months = $ 24,000 (annually)
$24,000 / $0.88 = 27,273 stocks
27,273 stocks x $161.02 (price of AAPL) = $4,391,454.54.
Another Example:
Citigroup (NYSE:C) whose price is $65,50 with a dividend yield of 3.11%, you would need to have approximately $685,714 to receive $2,000 monthly.
65.50 * 3.11% = $ 2.04
In this case, if you were going to earn $2,000 monthly in dividends from C, you need to have 11,764 stocks, whose price is $770,542
$2,000 x 12 months = $ 24,000 (annually)
$24,000 / $2.04 = 11,764 stocks
11,764 stocks x $65.50 (price of C) = $770,542
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4. Don’t chase High dividend Yields.
[/vc_column_text][vc_empty_space height=”11px”][vc_column_text]With the average dividend yield around 3%, jumping into stock with more than 10% as dividend yield should be looked at in a very detailed manner. It’s known that high dividend yields mean higher risk in this business, it could mean that the stock is having a problem that is pushing the stock price down.
Generally, it is because of three reasons:
-
- The instrument is distributing a “return of capital” in addition to the regular dividend, or simply giving back your original investment.
- This instrument is leveraged, which is highly risky because of the downturns of any unexpected change in policies
- The company is in distress and its price is going to burn fast.
Always do your due diligence about the instrument that you’re planning to buy in places like Morningstar, Finviz, Market Watch, Tradingview, or others.
A dividend yield in the range of 2.5% to 3.5% is considered a regular dividend yield, more than 3.5% is considered risky and less than 1.00% could be considered conservative (in this case you have to do your own diligence because there are stable stocks like AT&T (NYSE: T) that has a high dividend yield and still is considered a stable or secure stock.
When investing in a stock you should not only focus on its dividend, you should mostly focus on its base price. Because the high dividend is a return of capital, it means that the stock could be unable to maintain this yield in the future as the capital gains might be shrinking.
Think that you worked hard for this money, and you’re just going to give it away into a stock that is going to the ground, look at the dividend history, research on the historical stock price and of course diversify to be less exposed.[/vc_column_text][vc_empty_space height=”35px”][/vc_column][/vc_row][vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column][vc_single_image image=”1386″ img_size=”large” qode_css_animation=””][vc_empty_space height=”21px”][vc_column_text]
5. Determine the Investment Required
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You have to do your due diligence, and ask yourself basic questions like what fits your investment portfolio better? What is going to maximize your returns, minimize the risk, what will make you pay fewer taxes?
As said in the lines before, the taxation of REITs is different from the stock capital gains.
5.1 What is the minimum investment needed to have a 2000 dividend monthly?
Let’s look at tables N°1 Stock and N°2 REITs.
The biggest Dividend Yield Stock in this list is AT&T (T) which has an 8.71% this year, meaning that will distribute an 8.71% of the price annually.
$2,000 x 12 months = $ 24,000 (annually)
$24,000 / 8.71%= $275,546
If you only invested in (NYSE: T) you would need around $275,546 to receive the equivalent to $2,000 monthly, but the problem is that this stock pays quarterly, which means that you will receive this money in 4 payments along February, May, August, November.
What, does that mean that there are no stocks that pay dividends monthly?
NO, there are various stocks (or REITs) that distribute their dividends monthly (like NASDAQ: STAG, NASDAQ: LAND; NYSE: AVAL; NASDAQ: GWRS; OTCMKTS: TRSWF), it’s just not as common. What is common is to find more stocks that distribute their dividends quarterly, which would make us diversify to achieve our dividend goal.
I guess that many of you may not have $275,000 to invest (I don’t have them yet) to achieve $2,000 in dividends. And even if you have them, is that the best way to obtain them?
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6. Instruments that will help you achieve 2000 a month in Dividends
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Now that you already decided on the dividend yield and the amount that fits your financial strategy, you have to take into account what are the instruments that you’re investing into, I mean, you’re not just investing in numbers, you are investing in an instrument that has the capability of generating a strong and reliable monthly income, and it’s appreciating over time.
6.1 Determine the Instruments you are going to invest in to achieve 2000 a month in dividends, focus on diversification.
|
Table N°1 – 27 Stocks That Distribute Dividends And Their Frequency |
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|
N° |
Symbol |
Company Name |
Dividend Yield |
% YTD |
Dividend Frequency |
Payment Month |
|
1 |
T |
AT&T Inc. |
8.71% |
-17.71 % |
Quarterly |
February – May – August – November |
|
2 |
NPK |
National Presto Industries Inc. |
7.52% |
-3.19 % |
Yearly |
March |
|
3 |
OKE |
ONEOK Inc. |
5.88% |
67.77 % |
Quarterly |
February – May – August – November |
|
4 |
IRM |
Iron Mountain Inc. |
5.42% |
76.03 % |
Quarterly |
January – April – July – October |
|
5 |
PM |
Philip Morris International Inc. |
5.29% |
15.09 % |
Quarterly |
January – April – July – October |
|
6 |
PNW |
Pinnacle West Capital Corp. |
5.15% |
-21.03 % |
Quarterly |
March – June – September – December |
|
7 |
PSX |
Phillips 66 |
4.92% |
7.10 % |
Quarterly |
March – June – September – December |
|
8 |
CVX |
Chevron Corp. |
4.68% |
25.78 % |
Quarterly |
March – June – September – December |
|
9 |
SAFT |
Safety Insurance Group Inc. |
4.59% |
4.16 % |
Quarterly |
March – June – September – December |
|
10 |
NWE |
NorthWestern Corp. |
4.36% |
-7.84 % |
Quarterly |
March – June – September – December |
|
11 |
EIX |
Edison International |
4.21% |
5.17 % |
Quarterly |
January – April – July – October |
|
12 |
OMC |
Omnicom Group Inc. |
4.11% |
7.10 % |
Quarterly |
January – April – July – October |
|
13 |
ALE |
ALLETE Inc. |
4.09% |
4.41 % |
Quarterly |
March – June – September – December |
|
14 |
PFG |
Principal Financial Group Inc. |
3.82% |
42.96 % |
Quarterly |
March – June – September – December |
|
15 |
AEP |
American Electric Power Co Inc. |
3.68% |
-1.90 % |
Quarterly |
March – June – September – December |
|
16 |
LAMR |
Lamar Advertising Co. |
3.53% |
34.72 % |
Quarterly |
March – June – September – December |
|
17 |
KMB |
Kimberly-Clark Corp. |
3.52% |
-4.48 % |
Quarterly |
January – April – July – October |
|
18 |
SRE |
Sempra Energy |
3.45% |
-4.80 % |
Quarterly |
January – April – July – October |
|
19 |
REG |
Regency Centers Corp. |
3.38% |
50.91 % |
Quarterly |
January – April – July – October |
|
20 |
MMM |
3M Co. |
3.31% |
0.37 % |
Quarterly |
March – June – September – December |
|
21 |
SJM |
J.M. Smucker Co. |
3.22% |
11.91 % |
Quarterly |
March – June – September – December |
|
22 |
C |
Citigroup |
3.14% |
14.77 % |
Quarterly |
February – May – August – November |
|
23 |
WEC |
WEC Energy Group Inc. |
3.01% |
-1.67 % |
Quarterly |
March – June – September – December |
|
24 |
CVGW |
Calavo Growers Inc. |
2.86% |
-40.44 % |
Yearly |
December |
|
25 |
HAS |
Hasbro Inc. |
2.84% |
7.38 % |
Quarterly |
February – May – August – November |
|
26 |
ES |
Eversource Energy |
2.84% |
-3.03 % |
Quarterly |
March – June – September – December |
|
27 |
EQR |
Equity Residential |
2.79% |
45.64 % |
Quarterly |
January – April – July – October |
|
Stock data current as of November 1, 2021. |
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Table N°2 – 27 REITs That Distribute Dividends And Their Frequency |
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|
N° |
Symbol |
Company Name |
Dividend Yield |
% YTD |
Dividend Frequency |
Payment Month |
|
1 |
ORC |
Orchid Island Capital |
16.46 % |
-13.50 % |
Monthly |
|
|
2 |
ARR |
ARMOUR Residential REIT |
12.00 % |
-8.09 % |
Monthly |
|
|
3 |
TWO |
Two Harbors Investment Corp. |
11.30 % |
-6.96 % |
Quarterly |
January – April – July – October |
|
4 |
GNL |
Global Net Lease Inc. |
11.08 % |
-14.96 % |
Quarterly |
January – April – July – October |
|
5 |
NLY |
Annally Capital Management |
10.54 % |
2.33 % |
Quarterly |
January – April – July – October |
|
6 |
AFIN |
American Finance Trust |
10.51 % |
-0.12 % |
Quarterly |
January – April – July – October |
|
7 |
EFC |
Ellington Financial Inc. |
10.49 % |
15.32 % |
Monthly |
|
|
8 |
PMT |
PennyMac Mortgage Investment Trust |
10.34 % |
3.35 % |
Quarterly |
January – April – July – October |
|
9 |
ARI |
Apollo Commercial Real Estate Finance Inc. |
10.06 % |
24.20 % |
Quarterly |
January – April – July – October |
|
10 |
AGNC |
AGNC Investment Corp. |
9.39 % |
-1.73 % |
Monthly |
|
|
11 |
OHI |
Omega Healthcare Investors Inc. |
9.30 % |
-22.57 % |
Quarterly |
January – April – July – October |
|
12 |
MORT |
VanEck Mortgage REIT Income ETF |
8.91 % |
10.30 % |
Quarterly |
January – April – July – October |
|
13 |
BRG |
Bluerock Residential Growth |
4.47 % |
14.76 % |
Quarterly |
January – April – July – October |
|
14 |
UNIT |
Uniti Group |
4.40 % |
28.03 % |
Quarterly |
January – April – July – October |
|
15 |
CLPR |
Clipper Propierties |
4.24 % |
43.09 % |
Quarterly |
March – June – September – December |
|
16 |
KRC |
Kilroy Realty Corporation |
3.07 % |
3.09 % |
Quarterly |
March – June – September – December |
|
17 |
PPTY |
Vident U.S. Diversified Real Estate ETF |
2.82 % |
0.50 % |
Quarterly |
January – April – July – October |
|
18 |
COLD |
Americold Realty Trust |
2.72 % |
-4.71 % |
Quarterly |
January – April – July – October |
|
19 |
VNQ |
Vanguard Real Estate Index Fund |
2.44 % |
31.50 % |
Quarterly |
January – April – July – October |
|
20 |
IIPR |
Innovative Industrial Propierties Inc. |
2.10 % |
69.37 % |
Quarterly |
January – April – July – October |
|
21 |
SCHH |
Schwab Strategic Trust |
1.85 % |
28.38 % |
Quarterly |
March – June – September – December |
|
22 |
INDS |
Pacer Benchmark Industrial Real Estate |
1.55 % |
0.02 % |
Quarterly |
March – June – September – December |
|
23 |
IYR |
iShares U.S. Real Estate ETF |
1.10 % |
-0.45 % |
Quarterly |
March – June – September – December |
|
24 |
VPN |
Global X Data Center REITs & Digital Infrastructure ETF |
0.77 % |
-1.24 % |
Annually |
January |
|
25 |
APLE |
Apple Hospitality |
0.27 % |
16.74 % |
Quarterly |
January – April – July – October |
|
26 |
NURE |
Nuveen Short-Term REIT ETF |
0.00 % |
39.30 % |
Quarterly |
January – April – July – October |
|
27 |
REM |
iShares Mortgage Real Estate Capped ETF |
0.00 % |
12.80 % |
Quarterly |
March – June – September – December |
|
Stock data current as of November 1, 2021. |
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We have already reviewed a couple of stocks (and REITs) that distribute their dividends monthly. What all of the advisors say is that you should diversify your investments are
I believe you shouldn’t invest in a limited number of instruments to obtain dividends because you will be exposed to the market performance of one or two options (which could be very wrong). The solution is a combination of investments where you diversify your portfolio, as a way to reduce the exposure to a limited number of investments.
There are some ETFs that are diversified by themselves, making them safer than just a simple stock. (for example QQQ, SPY, EEM, etc).
Why is this important? I always compare my investments with others, which in this case could be investing in Real Estate. Real Estate can appreciate over time, and has the capability of generating a monthly income, but has the downside of having to operate and maintain the property (which I don’t like).
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7. Invest regularly and build up to 2000 a month in dividends.
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I know that some of you might have $275,000 that we discussed investing in AT&T (NYSE: T), but for us mortals, the only way to achieve that amount of investment, which could potentially distribute 2000 monthly in dividends is to invest regularly for a long time, and for that, you have to have a habit of investment.
There are different ways to face regular investment, you could do a lump sum every year, every 6 months, or you could do a monthly investment.
Monthly investment is less painful than a big sum of money and helps to be less exposed to the volatility of the stock price. You could start with as little as $10, and even if it feels little and not worth the hassle, the most important is to create the habit of saving/investing regularly.
Set up a budget and separate a monthly amount that you feel comfortable with, try not to put all your eggs in one basket and diversify.
What I try to do is to buy stocks or REITs every time technical indicators are showing a good entrance.
7.1 Using Indicators to Invest regularly
I have two indicators that I use the most:
-
Relative Strength Index: It is an indicator intended to show the current and historical strength or weakness of a stock or market based on the closing prices of a recent trading period.
-
Exponential Moving Average: It is a technical chart indicator that tracks the price of an investment over a period of time
The evidence shows that every time RSI is below 30 and the Intraday graph shows the candles surpassed the 200-EMA is a good opportunity to buy. Of course, this is not always going to happen as clear as it is described, but still using indicators could tell you what is a better entrance or exit in a position.
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8. Reinvest your dividends to accelerate your 2000
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One way to accelerate our goal of obtaining more dividends is to buy more shares to obtain more dividends, that sounds logical, right? but when you buy more shares with the dividends received you could buy these directly from the company not having to pay your broker for the transaction.
8.1 DRIPS
Many companies have a process called DRIPS (aka for Dividends Reinvestment Plans) where you can reinvest your dividends in a simplified process. This allows you to automatically reinvest your dividends, while you’re not paying transaction fees or commission fees to your broker.
Some companies offer discount prices of their stocks through this process and also let you buy a fraction of shares, which you wouldn’t be able to do through a regular broker.
8.2 When to cash out your dividends?
Not everything is roses and sweets, sometimes the instrument where you invested is no longer expanding and after a couple of months of poor performance, it might be time to sell.
This happens when:
-
- You are near your retirement and you need the money. Maybe you’re tired of the volatility and prefer to pay some debts, or just to start spending you’re money.
- It’s been a couple of months where the asset is not providing enough dividends or the price is getting lower and lower, so it’s time to cash out and focus on another type of stock (or REITs)
- You realize that your portfolio is composed of just a few instruments or you are balancing your portfolio towards one industry or sector and you need to diversify.
- When you need to balance your portfolio
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9. Never lose sight of expenses
[/vc_column_text][vc_empty_space height=”11px”][vc_column_text]How much does it cost to own a mutual fund or ETFs? There is an indicator called expense ratio that tells you how much does the management of that fund or ETF charge.
The expense ratio expresses the annual fee charged to investors who own mutual funds and exchange-traded funds (ETFs).
Higher expense ratios can reduce your potential returns over the long term, that is why you have to always take into account this ratio if you’re going to be a long term investor. (remember, that management takes their money if you lose or gain money).
For example, Invesco’s ETF (NASDAQ: QQQ) which is an ETF that mimics the movement of the Nasdaq Index by owning 100 shares in it’s ETF, has an expense ratio of 0.2%, meaning that annually you will pay a 0,2% of your holdings to them.
Let’s say you have $10,000 a 0.2% would be $20.00
Disclosure: The author held no positions in the aforementioned securities at the original time of publication.
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