How much do I need to invest to replace my income?

Dividends give you fuel you need to replace you current income with investment income. The gains in your portfolio with come from capital gains and dividends paid to you.

First, what is your income? That will determine how much you need.

Right now COVID-19 is killing investment gains. But this is the perfect time to get into the market, because everything is at low prices. There are plenty of deals to be found.

And there are plenty of business that are still paying dividends. A ton of traditional businesses that are taking government loan money will stopping paying dividends in the short term like the Airlines. But that will not last forever they will get back on their feet and start paying again. The are great investments right now, because the stocks are cheap and they employ so many people. The government has decided that these businesses are too important too fail so they will never go out of business. They may not have the growth potential of a tech company, but they provide the security that dividend investors love.

If you owned 25,000 shares that paid a $.5 dividend quarterly:

That would give you $12,500 quarterly. That equally $50,000 per year.

Remember that you get paid dividends quarterly so you would need to dividend by 12 to get the monthly amount that you need.

T – AT&T pays that dividend right now and costs $30 per share.

25,000 x 30 = $750,000

That is how much you would need to invest to make that much dividend income per year. There are ways to get that number down.

I still find it amazing that businesses are more than willing to share their wealth with you as long as you hold shares of their stock. So the goal is to get as many shares as possible.

Utility businesses are known for being great dividend paying businesses. If you own a home in a large metropolitan area you are going to need electricity. You only have so many options making these businesses basically a monopoly. A city will just let any random person create an electric grid in their town. It is heavily regulated.

And then if own a home you are located into that metro area for many years. Come rain or shine you are going to need that electricity and water. If you can find metro areas that are growing quickly by population then the utility will grow right along with it. As long as management does not do stupid things.

There are lots of businesses that have paid out consistent dividends over the past 25 years and increased the amount of their dividend.

These are the Dividend Aristocrats. Most of them are large businesses that been around for many decades.

Here are a few dividend aristocrats:

  • CAT – Caterpillar
  • CVX – Chevron
  • JNJ – Johnson and Johnson
  • MCD – McDonalds
  • NUE – Nucor
  • TROW – T. Rowe Price
  • WMT – Wal-Mart

In many cases these businesses often out perform the market. The businesses are stable and management is prudent and wants to keep the shareholders happy.

Purchase these business right now at a good price. One way to find what a good price is to look and see what famous investors purchased these stocks at. And then purchase when the stock drops below that price.

You can also select several of these stocks that are in different sectors of the market and are effected by the market in different ways.

I go over all of the dividend aristocrats and criteria about how to select the right ones and what mistakes to avoid in my upcoming book: 101 Forever Dividend Stocks.

Go preorder it on Amazon and check out my other works.

As always feel free to ask me any questions or comments at collin@yntbr.com

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Published by Collin Harness

Obsessed with creating value and helping people achieve financial independence.

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