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Many investors dream of passive income. Not relying solely on a paycheck can give you the freedom to pursue your dreams, bring you closer to retirement, or provide a solid safety net for potential hard times.
Dividend investing can be a way to build a nest egg and make your money work for you. If you earn $1,000 a month, you need to generate $12,000 in dividends annually. To do that, you need to own stocks that meet a few criteria. They need to offer a consistent and steady dividend payment. Some stocks with high yields can be tempting, but if you look at the dividend history, you may spot dividend cuts or pauses. The health of the company, the industry it’s in, and the strength of the balance sheet all help determine which stocks will hold up.
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Can you generate $1,000 in monthly income from just four dividend-paying stocks? This portfolio would seek yield and reliability, with an emphasis on sector diversification. Assuming an average dividend yield across four stocks is about 4%, the total investment needed would be about $300,000 to generate $12,000 annually at a 4% yield.
Choosing the right stocks
A mix of stocks from different sectors can balance risk while pursuing high and stable dividend yields. These can include:
1. Altria Group, Inc. (NYSE:MO)
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Sector: Basic consumer goods (tobacco)
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Dividend yield: 7.6%
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Why: Altria has a long history of paying high dividends despite operating in a declining industry. The high yield helps it reach income goals faster.
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NB: Sales of the company’s smokeable products fell 5.6% in the second quarter of 2024. The company is in the process of transitioning to more smoke-free offerings, and investors will want to watch the company’s progress in that area. “We are confident in the long-term outlook for our smoke-free portfolio and have a significant opportunity to responsibly lead the transition of adult smokers to a smoke-free future,” Altria CEO Billy Gifford said on the company’s second-quarter earnings call.
2. AT&T Inc. (NYSE:T)
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Sector: Telecommunications
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Dividend yield: 5.29%
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Why: While AT&T has had challenges, it maintains a strong dividend. It operates in a cash-flow-heavy industry, which supports stable dividends over time.
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NB: As one analyst put it, AT&T needs to manage “growth and profitability.” That means expanding its mobility business and preparing for the future of broadband. “This story is about growing customers and profitability, as our fixed consumer business delivered over 7% EBITDA growth in the second quarter. This was driven by approximately 18% growth in fiber revenue and improved operating leverage as we transitioned from legacy networks to advanced broadband infrastructure,” AT&T CEO John Stankey said during the second-quarter earnings call.
3. Realty Income Corporation (NYSE:O)
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Sector: Real Estate (REIT)
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Dividend yield: 5.06%
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Why: Realty Income is a REIT known for paying dividends monthly, which provides stability and regular income. It is a good choice for consistent cash flow.
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Note: Investors will want to keep an eye on how Realty Income is handling debt. In August, the company announced a public offering of $500 million in senior unsecured notes due 2054 with an effective yield of 5.486%. The company has also indicated that it may sell some properties sooner. “As we continue to calibrate and refine our predictive analytics tools and enhance our investment playbooks for each property in our portfolio, we may be more active in selling than we have been in the past,” Realty Income CEO Sumit Roy said during the company’s second-quarter earnings call.
4. Johnson & Johnson (NYSE:JNJ)
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Sector: Health care
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Dividend yield: 3.02%
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Why: Although the yield is lower than the other companies, J&J is very stable and has a strong track record of dividend growth, making it a good defensive stock.
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Watch: Johnson & Johnson is deepening its exposure to medtech through strategic acquisitions. Last month, the company announced it would pay $1.7 billion for V-Wave, a medical device company focused on cardiovascular issues. “We continue to grow our pipeline, launch new commercial products and integrate strategic acquisitions that broaden and further differentiate our portfolio,” Joseph Wolk, the company’s chief financial officer, said during the company’s most recent earnings call.
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Adjust the assignment
Given the different yields, we would allocate more capital to lower-yielding but more stable stocks like Johnson & Johnson and Realty Income. Higher-yielding stocks like Altria and AT&T may require less capital. The combined yield of these four stocks is 5.2%, meaning it could take less than $300,000 to reach that $12,000 annual goal.
These are just assumptions, and investors should remember that high-yielding stocks like Altria and AT&T carry more risk, while J&J offers stability but lower returns. The dividend payout ratio and financial health of each stock should be monitored to ensure sustainable dividends. While this portfolio is diversified across sectors, it is still important to review it regularly. Diversifying into other stocks, bonds, and real estate can provide additional income and protection from broader downturns.
Another way to build wealth
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This article How Much Would It Cost to Earn $1,000 a Month in Dividends From Just Four Stocks? originally appeared on Benzinga.com
