What is a realistic dividend yield?
The average dividend yield on S&P 500 index companies that pay a dividend historically fluctuates somewhere between 2% and 5%, depending on market conditions. 7 In general, it pays to do your homework on stocks yielding more than 8% to find out what is truly going on with the company.
Yields from 2% to 6% are generally considered to be a good dividend yield, but there are plenty of factors to consider when deciding if a stock's yield makes it a good investment.
A range of 0% to 35% is considered a good payout. A payout in that range is usually observed when a company just initiates a dividend. Typical characteristics of companies in this range are “value” stocks.
Investors looking for income from dividend stocks should concentrate on stocks that have at least a 3% dividend yield. Investors should also consider the traps mentioned above to avoid unnecessary risk. Most stocks with a dividend yield of 10% or higher are very risky, since a dividend cut is likely in store.
Generally speaking, a dividend payout ratio of 30-50% is considered healthy, while anything over 50% could be unsustainable.
To generate $5,000 per month in dividends, you would need a portfolio value of approximately $1 million invested in stocks with an average dividend yield of 5%. For example, Johnson & Johnson stock currently yields 2.7% annually. $1 million invested would generate about $27,000 per year or $2,250 per month.
Over time, the cash flow generated by those dividend payments can supplement your Social Security and pension income. Perhaps, it can even provide all the money you need to maintain your preretirement lifestyle. It is possible to live off dividends if you do a little planning.
If a company issues a 5% stock dividend, it would increase the number of shares by 5%, or one share for every 20 shares owned. If a company has one million shares outstanding, this would translate into an additional 50,000 shares. A shareholder with 100 shares in the company would receive five additional shares.
Stock | Trailing annual dividend yield* |
---|---|
Crown Castle Inc. (CCI) | 5.9% |
Pfizer Inc. (PFE) | 5.9% |
Boston Properties Inc. (BXP) | 6.2% |
Kinder Morgan Inc. (KMI) | 6.2% |
Basic Info. S&P 500 Dividend Yield is at 1.47%, compared to 1.62% last month and 1.74% last year. This is lower than the long term average of 1.84%.
What is the safest dividend stock?
- Verizon Communications VZ.
- Philip Morris International PM.
- PepsiCo PEP.
- Altria Group MO.
- Bristol-Myers Squibb BMY.
- Medtronic MDT.
- Gilead Sciences GILD.
- Pioneer Natural Resources PXD.
Higher interest rates have weighed on valuations across the space, keeping their yields high. Stag Industrial (NYSE: STAG), Realty Income (NYSE: O), and Mid-America Apartment Communities (NYSE: MAA) currently offer dividend yields that are more than double that of the S&P 500.
COMPANY | SECTOR | DIVIDEND YIELD |
---|---|---|
Cisco Systems Inc. (CSCO) | Technology | 3.21% |
Comcast Corp. (CMCSA) | Communication services | 2.86% |
Skyworks Solutions (SWKS) | Technology | 2.51% |
Marathon Petroleum Corp. (MPC) | Energy | 1.64% |
If, for example, your portfolio gets to a value of $1.5 million, you could invest in a fund or multiple investments that yield an average of 3.3%. At that rate, you could generate $50,000 in annual dividends.
To have a perfect portfolio to generate $1000/month in dividends, one should have at least 30 stocks in at least 10 different sectors. No stock should not be more than 3.33% of your portfolio. If each stock generates around $400 in dividend income per year, 30 of each will generate $12,000 a year or $1000/month.
When inflation has been high, the stocks that have increased their dividends the most have outperformed the overall market. Dividend payments may help make a stock's total return less volatile.
But the truth is you can get a 9.5% yield today--and even more. But even at 9.5%, we're talking about a middle-class income of $4,000 per month on an investment of just a touch over $500K. Below, I'll reveal how to start building a portfolio that could get you an even bigger income stream than this today.
In this case: $1 million. For a more conservative estimate, though, divide 60,000 by 3%. That gives you a savings goal of $2 million. If you use a more conservative interest rate of 1% (most savings accounts fall short of the 1% interest rate these days), you would need $6 million to earn $60,000 a year in interest.
Dividends can be classified either as ordinary or qualified. Whereas ordinary dividends are taxable as ordinary income, qualified dividends that meet certain requirements are taxed at lower capital gain rates.
Can an investor really get rich from dividends? The short answer is “yes”. With a high savings rate, robust investment returns, and a long enough time horizon, this will lead to surprising wealth in the long run.
Can you live off dividends of $1 million dollars?
Once you have $1 million in assets, you can look seriously at living entirely off the returns of a portfolio. After all, the S&P 500 alone averages 10% returns per year. Setting aside taxes and down-year investment portfolio management, a $1 million index fund could provide $100,000 annually.
The 45-Day Rule requires resident taxpayers to hold shares at risk for at least 45 days (90 days for preference shares, not including the day of acquisition or disposal) in order to be entitled to Franking Credits.
Preferred stocks have a different holding period than common stocks and investors must hold preferred stocks for more than 90 days during a 181-day period that starts 90 days before the ex-dividend date.2The holding period requirements are somewhat different for mutual funds.
To qualify for the qualified dividend rate, the payee must own the stock for a long enough time, generally 60 days for common stock and 90 days for preferred stock. To qualify for the qualified dividend rate, the dividend must also be paid by a corporation in the U.S. or with certain ties to the U.S.
The Coca-Cola Company's ( KO ) dividend yield is 3.24%, which means that for every $100 invested in the company's stock, investors would receive $3.24 in dividends per year. The Coca-Cola Company's payout ratio is 74.22% which means that 74.22% of the company's earnings are paid out as dividends.
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