Can you live off REIT dividends?
Dividends are particularly valuable in retirement because they provide a consistent stream of income that can help cover living expenses. And, unlike bonds, dividend stocks offer the potential for capital gains as well as income. That means your portfolio can continue to grow even as you withdraw money from it.
It is possible to achieve financial freedom by living off dividends forever. That isn't to say it's easy, but it's possible. Those starting from nothing admittedly have a hard road to retirement-enabling passive income.
According to Forbes, they typically pay measly yields of around 1.5%, which means you would need about $4 million to earn $50,000 a year in dividend payouts.
Portfolio Dividend Yield | Dividend Payments With $100K |
---|---|
1% | $1,000 |
2% | $2,000 |
3% | $3,000 |
4% | $4,000 |
Publicly traded REITs trade on stock exchanges. REITs often own apartments, warehouses, self-storage facilities, malls and hotels. The best REITS pay large and growing dividends, but as with all investments, they can carry risk.
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.
Too many people are paid a lot of money to tell investors that yields like that are impossible. 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.
The truth is that most investors won't have the money to generate $1,000 per month in dividends; not at first, anyway. Even if you find a market-beating series of investments that average 3% annual yield, you would still need $400,000 in up-front capital to hit your targets. And that's okay.
A well-constructed dividend portfolio could potentially yield anywhere from 2% to 8% per year. This means, to earn $3,000 monthly from dividend stocks, the required initial investment could range from $450,000 to $1.8 million, depending on the yield. Furthermore, potential capital gains can add to your total returns.
Earning $2,000 in monthly passive income sounds unbelievable but is achievable through dividend investing. However, the investment amount required to produce the desired income is considerable. To make $2,000 in dividend income, the investment amount and rate of return must be $400,000 and 6%, respectively.
How much to invest to get $1,000 a month in dividends?
For example, if the average yield is 3%, that's what we'll use for our calculations. Keep in mind, yields vary based on the investment. Calculate the Investment Needed: To earn $1,000 per month, or $12,000 per year, at a 3% yield, you'd need to invest a total of about $400,000.
A great way to grow 100K into a million is through a diversified investment portfolio. This can include exchange-traded funds (ETFs) for broad market exposure, dividend stocks for steady income, and growth stocks for higher potential returns.
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.
Risks of investing in REITs include higher dividend taxes, sensitivity to interest rates, and exposure to specific property trends.
The value of a REIT is based on the real estate market, so if interest rates increase and the demand for properties goes down as a result, it could lead to lower property values, negatively impacting the value of your investment.
While higher rates negatively impacted nearly every sector of the economy in 2022 and most of 2023, real estate was hit especially hard. Rising interest rates hurt not only the value of REITs' property holdings but also the cost of debt to finance those properties or even refinance already-owned assets.
Bottom Line. Retiring at 50 is a great goal to have. If you have $3 million saved, it's likely that you'll be able to retire comfortably. You'll need to factor in your living expenses, inflation and the expected rate of return on your investments.
In fact, statistically, around 10% of retirees have $1 million or more in savings. The majority of retirees, however, have far less saved. If you're looking to be in the minority but aren't sure how to get started on that savings goal, consider working with a financial advisor.
- Stocks.
- Real Estate.
- Private Credit.
- Junk Bonds.
- Index Funds.
- Buying a Business.
- High-End Art or Other Collectables.
Creating a Course
You can market an online course that will help you earn passive income monthly. Plenty of platforms, such as Teachable, make creating your online course a breeze. If you want to know how to make 5k per month, creating a course is one of the best ways to go.
How much to invest per month to become a millionaire in 5 years?
So, what do you need to do to have $1 million after five years? If you have never invested before (you have zero balance in your investment account), you need to invest approximately $12,821 at the end of every month for the next five years.
Age | Income | Net Worth |
---|---|---|
20 | $25,000 | $50,000 |
25 | $35,000 | $87,500 |
30 | $50,000 | $150,000 |
50 | $55,000 | $275,000 |
Stock | Forward dividend yield |
---|---|
Exxon Mobil Corp. (XOM) | 3.5% |
Johnson & Johnson (JNJ) | 3% |
Procter & Gamble Co. (PG) | 2.3% |
Home Depot Inc. (HD) | 2.4% |
Altria Group Inc.
Altria is a popular dividend stock that has been atop the list of the highest-paying S&P 500 dividend stocks for a while. That's because of its consistent and reliable yield and a great track record of increases in its payouts.
Dividend-paying Stocks
Shares of public companies that split profits with shareholders by paying cash dividends yield between 2% and 6% a year. With that in mind, putting $250,000 into low-yielding dividend stocks or $83,333 into high-yielding shares will get your $500 a month.
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