Dividend Income Planner: How Much Do You Need to Invest?

The short answer

To get $500 a month from dividends, you need about $200,000 invested at a 3% yield. At a 5% yield you need about $120,000.

A dividend is cash a company pays its owners, usually every three months. The yield is that yearly cash as a share of the price. A 3% yield means $3 a year for every $100 of shares.

The planner above does this sum for any amount. It is free and you don't need an account.

What the planner does

Type the income you want each month. You see:

• The money you need. How much you would need invested today for its dividends to pay that much.
• How to get there. If you give a number of years, the monthly saving that would grow to that amount by then.
• Real companies. Up to 10 companies from our nightly list that pay a dividend of 2% or more and have little debt. You see each one's yield and how many years in a row it has paid.

You pick the yield. "Typical (3%)" is close to what many steady dividend payers pay. "Higher (5%)" is what higher-paying companies offer. "Use real companies" uses the average yield of the companies we found on our "Paid to wait" list, not just the 10 in the table. It leaves out any yield of 8% or more, because those often come before a cut.

How it works

The first sum is simple:

Money needed = monthly income × 12 ÷ yield

$500 a month is $6,000 a year. $6,000 ÷ 3% = $200,000.

The saving plan takes more steps. Say you want the income in 10 years:

1. The target. The money needed, from the sum above.
2. You save the same amount each month. It goes in at the end of the month.
3. Prices grow. We assume share prices grow 5% a year. That is a guess, not a promise.
4. Dividends go back in. With "Reinvest dividends until then" on, each dividend goes back into more shares. We assume the yield stays the same, so dividends grow with the price.
5. The answer. The monthly saving that reaches the target in time.

Turn reinvesting off and only price growth helps. The dividends paid before then are yours to spend, so the plan doesn't count them.

Worked examples

All of these are for $500 a month.

Yield	Money needed	Monthly saving for 10 years, dividends reinvested	Without reinvesting
3%	$200,000	about $1,100	about $1,296
5%	$120,000	about $590	about $777

Take the first row. Saving $1,100 a month for 10 years is about $132,000 of your own money. Price growth and reinvested dividends add the other $68,000, if prices really do grow 5% a year.

With real companies. Say the companies we found pay 4% on average, leaving out any yield of 8% or more. Then you need $6,000 ÷ 4% = $150,000. The planner shows the real average, which changes each night with prices.

A higher yield makes the number smaller. It doesn't make it safer. See the next part.

Why a higher yield isn't free money

A yield goes up when the price falls. A price often falls because people expect trouble, such as a dividend cut. So a very high yield can be a warning.

The planner flags any company yielding 8% or more: "Yields this high often come before a cut." It also flags companies whose payouts jumped around in recent years.

What the planner can't tell you

• Dividends can be cut or stopped. A company pays only what its board decides, year by year.
• Taxes are not included. Most people pay tax on dividends, so you may need more.
• Prices move. What your shares are worth will go up and down, sometimes a lot.
• Costs rise. The income is in future dollars. Everyday costs usually rise, so the same amount may pay for less.
• It never says what to do. It shows the math. This is not advice.

Questions

How much do I need to invest to make $1,000 a month in dividends? About $400,000 at a 3% yield, or $240,000 at 5%. The sum is $12,000 a year divided by the yield.

Which yield fits? The planner can't pick one for you. 3% is a common middle ground for steady payers. Try 3%, 5% and the real companies, and see how much the answer moves.

Why 5% price growth? It is a round, middle-of-the-road guess for a long stretch. Some decades were far better and some far worse. The planner says it is an assumption next to every result.

Where do the real companies come from? From our "Paid to wait" list: companies on tonight's list that pay 2% or more and have little debt. We check about 3,000 US companies every night for a good business and a fair price. See the full list.

Is it really free? Yes. No account, no limit.

The next step

The planner shows the size of the goal. To look closer at one company's dividend, its history and how steady it looks, try the free dividend calculator. To see what a stock's price already assumes, try Is it undervalued?. Every company in the table links to its full page, with our verdict and five years of numbers.