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?
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.