Can you live off of dividends?

Living off of dividends

Two years ago I was sitting with my coworkers after a long, tedious shift, talking about what we would do if we won a million dollars. As expected, we said similar things, travel the world, pay off debt, give some of it to family and friends, spend on hobbies, or start a business. I remember saying I would buy a building with few units, live in one, and rent the rest of it, so I would never run out of money! What a GENIUS plan, isn’t it? On the second thought, I mentioned investing all of it so I can live off of dividends, again, for the rest of my life. Someone asked how much money would you need to have to be able to do it, but none of us knew the exact number. The closest one we got was: “A lot”.

What is “a lot’?

The idea of being able to live off of dividends stuck in my mind, so as soon as I got home I started digging and reading everything I could find about this topic. Can you live with dividend income only? If you can, what is that magic number you need to have in your portfolio so you can just give your boss a 2-week notice, say bye-bye, and start enjoying your life for the rest of your life?

YES, you can live off of dividends! The answer to the second question is: It all depends on how much money you need, how hard your portfolio is working for you, and how much risk you are ready to tolerate.

To determine your number you have to know how much income your portfolio has to generate every year, so you can maintain the desired lifestyle after paying taxes. That number will be different for let’s say a single guy who is very frugal, lives in a rural nonexpensive area and only needs $40.000 a year, then a couple that lives in New York, SF or D.C, loves to travel, dine out frequently, buys a new car every few years, etc.

Second, you have to be honest with your risk tolerance. As it goes, the more risk, the greater the potential reward, so that alone is the biggest part of this story. Naturally, older people tend to be more conservative with their money, so they would have a portfolio of stocks with low/er dividend yield. Younger and more aggressive investors tend to pick up stocks with high/er yield.

How to calculate the dividend yield?

It’s very easy to calculate dividend yield of any stock/portfolio:



Let’s take a look at 2 companies with different yields so you can see how these numbers can affect everything we are talking about:

  1. AT&T (T) pays $2.08 dividend and the price of the stock as of this writing is $38.84. So, the dividend yield, in this case, will be 2.08/38.84= 0.0547 or 5.35%. You should know that this is considered a high(er) yield.
  2. Now, let’s see how NVIDIA (NVDA) will come out. The company pays $0.64 in dividends, and the price of the stock is $230.25.  So, 0.64/230.25=0.003078 or 0.30%.

Now, shall we put these numbers to work so you will have a better perspective on how they impact any portfolio?

Let’s say you have $1000 to invest right now. With the current prices, you would be able to buy: 25 AT&T shares (I rounded that number), that will pay you $52 yearly, but only 4 shares of NVIDIA producing $2.56.

See how with the same amount of invested money you can have very different results. A quick look at what happens with a bigger investment of $1 million. AT&T would bring you $53,551, NVIDIA only $2,779 in dividends. Wow, what a difference!

Please, note, I am not saying that one company is better than the other, or that you should invest in them. I am just giving you some examples from the real world. Also, for now, we are completely skipping the price appreciation possibilities of these companies, which is very important when deciding where and when to invest your hard-earned money. And, the last warning, no one should ever invest all the money they have in only one company. Like EVER!

What is your number?

As you can see, 1 million dollars can be more than enough for some of you out there to be able to live off of dividends. With a decent yield, a well-diversified portfolio can generate enough money so you don’t have to work unless you want to. It seems that for many people that number is much higher.

Go ahead and play with different numbers and different scenarios. It’s fun! I know that most of you don’t have this kind of money to invest RIGHT NOW (unless you win that lottery). What you can do is start INVESTING NOW whatever amount you have and BUILD portfolio that will bring enough money to either completely replace your income, or supplement it once you decide it’s time to say goodbye to your job.

I would love to hear what’s your magic number and how soon you will have it?












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