Passive income from dividends

It's true that you would need a significant balance to have dividends large enough to cover significant expenses. However, the key to dividend growth investing is choosing dividend paying stocks with a history of paying an increasing dividend (ie. dividend achievers). If you want to read more on the topic, I would suggest that you pick up Derek Fosters first book from the library, Stop Working - Here's How You Can.

THIS WEBSITE IS A GOOD STARTING POINT:

http://cdndrips.googlepages.com/

Your lifestyle will influence how much cashflow you truly need. But a half a million dollars earning a very achievable 6%, would give you an annual cashflow of $30,000.

CuriousReader said:

Various articles / books about investing often talk about creating passive income stream that comes from dividends.

I am not sure how I can even start building a portfolio to have enough investment such that the dividends generated are significant enough to cover some, if not all, of your day-to-day expenses.

Dont you need a huge amount of money, say $1 million, to even consider having enough dividend coming in?

Please enlighten me on how I can start building portfolio towards generating enough dividend to be a steady passive income stream. Or may be I totally misunderstand something here?

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It depends. Like most things, investing is most advantageous when the asset is out of favour (ie there are no buyers).

If you needed $40K in dividend income, a $1M investment at a 4% dividend yield in normal times would do the trick. But if you could find an opportunity during a meltdown to buy the same securities at 50% off, then you would only need $500K to obtain the same dividend income (since the yield would effectively double as the price is halved).

I don't invest in dividends per se, but I did during the tech boom when people were chasing tech stocks and only tech stocks. I went for the 8% dividend yield utility. Not many people thought that was a great idea at the time.

Again, dividend investing is good for those who eventually want to replace their income with dividend income - that is, you want to live off the dividends. If you don't have that kind of goal (eg myself) then it may not be the best idea. In either case, it's a long-term game.

Rickson9 said:

But if you could find an opportunity during a meltdown to buy the same securities at 50% off, then you would only need $500K to obtain the same dividend income (since the yield would effectively double as the price is halved).

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This opportunity came and went in March. e.g. MFC was yielding 16% before the recent cut. So if you bought then, you'd still have an 8% yield after a 50% dividend cut.

If this is the strategy you want to pursue, be patient and keep at it. $1M is a lot less than you might think.

You could look at setting up DRIP accounts. They start of real slow but after a few years of dripping, especially good dividend growers and it really snowballs.

I would also recommend you read "The Single Best Investment" by Lowell Miller. Great book on dividend growth investing.

Miller outlines a nice and simple investing framework. Maybe not as simple as a "couch potato" approach, but one that "should" do better than an index approach. (At least I hope so as this is what I primarilly do)

FrugalTrader said:

It's true that you would need a significant balance to have dividends large enough to cover significant expenses. However, the key to dividend growth investing is choosing dividend paying stocks with a history of paying an increasing dividend (ie. dividend achievers).

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Or you can pick up an dividend ETF such as DTD or DEB. Wisdomtree offers a whole range of products in different sectors with fairly good yields.