Can you make enough in dividends to survive?

[ilovedolphins]

Just wondering if anyone has a lot of income from dividends. I have been contemplating if this would be a good move to add as supplemental income.

Could you make enough in dividends to help in retirement?

[schildi]

Yes, it's of course possible. It's just a question of how much you have to invest, and on how much you can survive.

[Deleted]

I would have some bonds too, though. Dividends can be cut. Never rely on one thing.

[Plain Old Petunia]

If you are drawing down your principal, then total return is what counts. It doesn't matter much if your total return is from dividends or gains.

If you are trying to draw only the income from your principal, then certainly you want some good dividend payers.

[2kids10horses]

tough,

While it is true that bank accounts are insured by the FDIC against loss (up to $250,000), the interest rate is earning below the inflation rate, so that money is losing value faster than it is earning interest.

To the OP: go over to the Start Investing forum (or whatever it's called). There are some dividend investors over there who can guide you.

[TD2K]

The big question is how much do have to invest in dividend paying stocks? You also want to be invested in a range of dividend paying stocks so if one company cuts/reduces their dividend, it's only a portion of your income. It's sort of like investing in bonds, you don't want to put all your money in one bond issue.

[phil5185]

I have been contemplating if this would be a good move to add as supplemental income.

I would advise against it unless you have a high net worth. After retirement, you need to move from wealth building to wealth preservation. And stocks are mainly for building, they carry way more risk than the income products such as CDs, savings accounts, and bonds.
A recent example would be the original GM stock - it historically paid a solid dividend for decades - then it went bankrupt 2 yrs ago and the stock is worthless, you would have lost your dividends and all of your principal as well.
But if you have over two million you might risk $500k of it to buy a group of stocks that pay $30,000/yr.

[Plain Old Petunia]

Feb 26, 2011 13:42:21 GMT -5 @toughtimes said:

There are no "good dividend" payers that will do this. Anything that offers a significant premium over bank account rates of 1% or less does so with enhanced risk of total loss. Remember the saying that sometimes it is not about return ON your principal, but return OF your principal.

There are many mature companies which offer good dividends. There are many mutual funds and etfs which invest for dividend yield.

[Artemis Windsong]

Please G-d may I have $1,000,000 drawing 10% interest compounded monthly? Amen

[isabella]

personally, think you would need a boatload of money to survive strictly on dividends. While I am moving closer to retirement I do have funds invested in these type of stocks but wouldn't be totally dependent on them for income. These are such dicey times, I would hang onto cash for awhile longer before jumping into the markets. Just my opinion.

[2kids10horses]

There are mutual funds that focus on dividends. These spread the risk out so if one company fails, you don't lose everything.

Utility companys are usually good dividend payers. SO (Southern Company) is paying a 4.78% dividend yield. They sell electricity to Georgia, Florida, Alabama, and Mississippi customers. I don't think they're going bankrupt anytime soon.

I offer SO as an example, there may be others that are even better.

Another approach is to sell covered calls on stocks you own. This is a more sophisticated approach, but it safe. The only risk is if the stock you own goes UP in price! The call you sold will be exercised, and the owner of the call will buy your stock from you. This means that you miss out on some appreciation. (If the stock goes down, you keep the premium and the stock.) This is a VERY simplified explanation, but it IS a valid way to generate income off stocks.

[ilovedolphins]

I am rethinking that idea. I really hate to lose money and I guess if it is in CD's, savings bonds or the bank I may not make any money on it but I won't lose the principle either.

[Tiny]

Could you make enough in dividends to help in retirement?

Depends. Let's just pretend you have all your money invested in one company. Let's just pretend the share value is $30.00 and that it stays pretty consistent (sometimes a couple dollars less, sometimes a couple dollars more). The company typically gives .30 per share dividend.
If you have 100 shares (you've invested about 3K) your quarterly dividend is $30.00 (and it buys you an additional share).
If you need 3K of income every month to live on that's 9K for a quarter - you'd need to have 30,000 shares (or about $900,000) of that particular stock.
You'd need a boatload of money invested in the dividend paying stock(s) and then you are also taking on alot of risk - especially if you are in retirement and can't afford to loose principle/income.

I think dividends can suppliment your income (maybe a couple hundred a month in retirement) and it certainly wouldn't hurt to start investing early (so your number of shares grows with contributions and dividend reinvestment) and of course you DON"T want all your eggs in one basket (or all your money in one dividend issuing company)...

I think most people would be better off saving for retirement via a fund (something that buys stocks of lots of companies) than going after individual companies because they offer dividends. I guess there are Funds that do this...

[2kids10horses]

Tough,

I gave an example of a utility payibg nearly 5%.

Even Microsoft now pays 2.5%. They're sitting on Billions in cash.

Merck is paying 4.72%.

Intel is paying over 3%.

All of these are well over the CD rate.

If you were to invest in any of these companies, sure you would want to monitor them to make sure they remain worthy of being in your portfolio. Maybe review the portfolio once a year.

Obviously, you don't understand covered call selling. You can't sell a COVERED CALL unless you own the stock. If the stock gets called, you have to sell the stock. If you want to write another covered call, you first buy back the stock, and then sell the call. Most brokers won't allow you sell a naked call, unless you have specificly signed all kinds of documentation stating that's what you want to do.

By the way, no one "gives" you anything when investing. As a stockholder, you own the company. Management, along with the Board of Directors, decides if the company is in financial condition to pay dividends.

There is some degree of risk in everything we do. Some are more tolerant of risk than others. Generally speaking, low risk investments have low returns. High risk investment have to have higher returns in order to compensate the investor for the risk involved.

US Government securities are considered to have zero risk, because they are backed by the full faith and resources of the US Government. But, there is still the risk of loss of purchasing power in an inflationary environment. If inflation is 3%, and your T-Bill is paying 1%, your buying power is declining. Of course, that is still better than sticking the cash in the mattress because that earns nothing.

Yes, we are in a low interest rate period. That does not mean there aren't ways to invest to get a higher rate of return with a reasonable degree of risk.

As for whether the OP can live off the dividends? I dunno. They didn't specify what their capital is, nor how much they need each month. Until we know that, there is no way to know.

[Deleted]

"Just wondering if anyone has a lot of income from dividends. I have been contemplating if this would be a good move to add as supplemental income.

Could you make enough in dividends to help in retirement?"

It depends. I think we need to know more about your situation. What other retirement income do you have? How much are you thinking of investing? What is the income goal you are trying to achieve?

"personally, think you would need a boatload of money to survive strictly on dividends"

This was certainly our experience last year. Our dividend income on primarily blue chip stocks valued at approx $400k was about $12k, just about 3%. Of course the sweet spot was that the stock value increased by about 100k which is around 25%. We're almost back to their pre Sept 2008 value.

We're fortunate that we have other investments because the last 2 1/2 years would have been gut wrenching otherwise. Our situation is a little unique but I agree with Phil that it probably makes sense for most people to invest in a diversified index fund. He really likes some of the target funds.

Post some more information as requested and people can give you some more specific advice. Don't forget to include your age and expected retirement date.

[cronewitch]

I used to have a utility stock that paid a nice dividend and some other dividend paying stocks. When a company pays dividends it means the company is fully grown pretty much. Microsoft was growing like crazy so needed all the income to fund the growth. When they slowed down growing they started paying dividends. Someone looking for growth would have sold then and someone looking for income might have bought.

I currently have MCD, ATT and Comcast that pay a dividend. MCD is paying .61 cents next month it is about 3.5% a year. The value fluctuates every day sometimes more than a dollar. I like the dividend because I can take it and spend it or invest in something else without selling any shares. I like to get dividends and distributions on mutual funds but even on a lot of investment money they aren't enough so I will need to sell something to live on eventually.

[2kids10horses]

Well, toughtimes, I guess we'll just have to agree to disagree.

SO (Southern Company) has been a high dividend payer for 30 years. Most utility stocks are like that.

Best wishes to you.

[telephus44]

This is part of my (long-term) plan. I have a few DRIPs I invest in monthly. Right now I have XOM and JNJ. Last year I made $175. I'm hoping that when I retire I'll be able to count on dividend income as a portion of what I'll need (not putting all my eggs in this basket). I am also hoping to add a few more stocks, too.