PSA: How Much Income from Dividends is there, really?

One of the tried and true financial wisdom ideas is that dividend paying stocks are a great supplemental income source, especially for retirees. Advisors and Social Media Fin-fluencers often present this as $1000/month in passive income, or how to have $1000/month of extra guaranteed income in retirement and so on.

All of this is true and there is a lot of financial wisdom related to this financial concept. A dividend is simply a share of company profits given to shareholders which is pretty cool.

The math works and there are a bunch of dividend paying companies!

So where is the PSA part?

What is often missing is an overall disconnect between financial strategies and people’s ability to execute the actual strategy.

How much money do you need to have invested in order to generate $1000/month in dividends?

Hundreds of thousands of dollars.

In order to understand this lets go over a couple basic mechanics of how this works and we will use one of my favorite companies to do so - Nike (NKE)

As of June 2nd the stock is trading at $60.89.

Nike’s annual dividend yield is 2.63%.

Often these are paid out on a quarterly basis which is why many are so interested in quarterly earnings.

TIme for the math!

(Share Price X Dividend Yield) / 4 = quarterly dividend payout.

($60.89 X 2.63%) / 4 = $0.40

So, how many shares are needed to get $1000/month. (don’t worry - I’ll do the math)

A: 7518 shares

Here comes the fun part - how much does that many shares cost?

A: $457,771

You might be thinking we could do better so let’s look our Dow (DOW) and do the same math. Dow has historically had a high dividend and it is currently at 10.4% (4x Nike!)

Dow is at $26.93 as of writing this and so you would need 4,347 shares.

That is equal to over $117,000 just in Dow stock to generate $1000/month in dividends. Not impossible and a little easier to get to than via Nike but still a lot of money for most of us.