The goal of every dividend investor is to one day build a portfolio of high yielding stocks that would pay off a large amount of dividends each month. The magic point is where the dividend income exceeds the dividend investor’s expenses. At the dividend transition point, your dividend income equals or exceeds or exceeds your expenses. For many dividend investors, this point is synonymous with financial independence. After all, after years of sacrifice, wise investments, and sticking to a plan, investors could finally be free from a nine-for-five job. The goal of hitting the dividend crossover point is achievable, but it takes capital, time, skill, or luck to get to the magic point.

A lot of work has to be done to reach this magical point. Investors need to design a strategy for retirement and then stick to it through thick and thin and improve in the process. Some of the biggest threats to successful dividend investing aren’t market volatility, dividend cuts, or recessions, but investor psychology.

The process of amassing a viable stream of dividends will take from several years for those starting out with a large amount in their 401 (k) or IRAs to a few decades for these young investors just starting their careers. On the way there, many investors lose sight of the goal out of sheer boredom or a lack of patience. Successfully investing in dividends is sometimes as exciting as drying paint. Unfortunately, investors who invest in dividends out of sheer excitement don’t stick to it. On the flip side, investors trying to speed up the process of capital accumulation through the use of options and futures, risky growth stocks, or massive leverages are likely to be disappointed.

The most important ingredients in accumulating adequate dividend income include time, dividend reinvestment, and regular contributions to your portfolio. The power of regular deposits is important because it ensures that investors consciously pursue their goal of dividend independence by investing in dividend stocks on a monthly basis. While the markets are volatile, I’ve always found at least 15-20 attractively valued high yield stocks. Reinvesting dividends in dividend growth stocks is essential to growing your passive income. And last but not least, investors need the time to let their income grow to the desired level.

Dividend investments take time before the dividend payout reaches a reasonable level. Imagine if someone had saved $ 1,000 a month for a year. Every month they invest a total of $ 1000 in two companies ($ 500 per company per month). By the end of the first year, you would have about 24 companies and the portfolio cost will be $ 12,000. With an average return of 4%, this portfolio will generate $ 480 in annual dividends, which is roughly $ 40 / month. On the positive side, the dividends from this portfolio generate enough to buy one additional stock position per year. Additionally, $ 40 a month could be paid for utility bills, phone bills, or internet bills for pretty much life for the investor. On the negative side, assuming the investor needed $ 1000 / month to cover their basic expenses, he or she would calculate that he or she would have to sacrifice nearly a decade before his or her income reached a decent amount. However, once they are there and their portfolios are made up of sweeping dividend champions with sustainable payouts, investors will be able to live off dividends.

You can see that building this dividend machine can be a long term process. The levers within the investor’s sphere of influence include the savings rate, the ability to develop and adhere to a strategy so that the power of long-term investment returns can take effect.

In my investments, I’ve found that following a few simple rules is very important to create a sustainable dividend machine that would generate reliable income for decades.

First, investors should focus on companies that have a long history of paying and raising dividends. I usually look for companies that have raised their dividends for at least ten straight years.

Second, investors should ensure that these companies are trading at attractive valuations. I’ve found that paying a P / E ratio above 20 can produce poor results.

Third, investors should ensure that the company’s dividend from profits or cash flows is sustainable. I usually look for a dividend payout ratio of less than 60% on common stocks. For REITs or Master Limited Partnerships, I am looking for FFO payout and DCF payout ratios.

Fourth, investors should conduct a qualitative analysis of the dividend paying company they are considering buying. This analysis should include an understanding of how the company makes money, growth prospects, competitive landscape, whether the company has a ditch, whether the company has strong brands that consumers are loyal to and that lead to pricing power.

Fifth, investors should try to build a diversified dividend portfolio that consists of at least 50-60 individual stocks from at least ten sectors. Exposure to international companies is beneficial, although most dividend growth stocks make much of their earnings outside of the United States.


Today we discussed the concept of the dividend crossover point, where dividend income exceeds expenses. We also discussed the tools that are within the control of the investor to get there.

Finally, I gave a brief overview of the types of simple investment rules I follow to value dividend-paying stocks. All of the principles listed in this article are the cornerstones of the dividend growth portfolio newsletter that I launched a few years ago. I believe that by showing how to build a real-world portfolio from scratch, I can educate investors about the inner workings of dividend investing.

At the same time, dividend income makes it easy to see how we’re doing against our ultimate goal of $ 1,000 in monthly dividend income. Right now, after three years of saving and investing, the dividend growth portfolio is making $ 110 in expected average monthly dividend income.


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