What’s Your Dividend Yield Target?

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One of the items to consider as you put together your dividend portfolio is yield target. You want the dividend stocks in your portfolio to meet your requirements for growth or for immediate income. This means that you will need to define your goals before building your portfolio.

What is a Good Yield Target?

As with so many things related to investing and to finances, what is good for you depends largely on your goals, as well as where you are at right now. One of the most important questions to answer about your portfolio is whether you plan to use it for income right now, or whether you are trying to grow it so that you can use it for income later.

If you plan to use your dividend portfolio for income later, you might be more interested in total returns than in yield. The yield is nice, since it will add to the number of shares that you own, but the total return might be a bigger focus. You can sell your investments later, after they have grown, and use the proceeds to invest in those stocks with higher yields for income. For many investors, a yield between 2% and 4.5% or 5% is acceptable for a dividend growth portfolio. There are a number dividend aristocrats that increase their pay outs regularly that can be ideal for this type of portfolio.

But what if you want income now? If you plan to use your portfolio for income right now, matters might change. You will need a higher yield in order to enjoy a higher income stream. This means your yield target should be between 4% and 6%. A lower yield won’t provide you with what you need. However, you don’t want a dividend yield that is too high. In some cases, a high yield can mean that there are problems, or it could be unsustainable. In either case, a yield that is too high is likely to be cut – and then you will see a reduction in income.

The key with an income dividend portfolio is to look for stocks that are likely to provide stable pay outs. There are dividend aristocrats that have pay outs in the 4% to 6% range, and that can satisfy those with a lower risk tolerance.

Bottom Line

Before you decide on dividend stocks for your portfolio, consider your goals, and what investments are likely to help you reach them. It might be wise to consult with a financial planner who can help you sort through your options.

7 Dividend Blogs You Need To Read

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We aim to inform our readers with quality dividend posts and lists… but we can’t cover everything. There are several other great bloggers out there covering dividend investing that you should be reading. Use these blogs to help you with your dividend learning and research.

1. The Dividend Pig


Follow the Dividend Pig on their journey towards creating a passive income stream large enough to live off of. You can view this investors current holdings and track their dividend income. You will also find in depth dividend analysis and news.

2. The Passive Income Earner


The Passive Income Earner started blogging because sharing financial information is a passion of theirs. Spending an hour a day reading and researching investment materials made blogging an easy transition. Their goal is to retire on passive income and they blog about their journey to reach that goal.

3. Dividend Monk


Matt has been investing for over 5 years and while he is not a real monk he does have a minimalist approach with a long term view. Matt likes to hold dividend growth stocks for the long term and reveals his dividend portfolio of 19 solid dividend payers.

4. Dividend Ninja


The Dividend Ninja has a very solid approach to dividend investing. You can read all about it on their about page. I love the modern design and feel this blog has but what we really care about is the content. The Ninja will help you stay on track with your investing and find solid stocks to invest in.

5. The Dividend Guy Blog


The Dividend Guy Blog has been a dependable source of dividend information for the last few years. Each week you can count on solid analysis, useful reading links and in depth articles explaining the ins and outs of dividend investing. Check out their 10 part dividend investment process.

6. Dividend Mantra


Dividend Mantra is trying to build a solid portfolio of dividend stocks, live frugally and retire by 40. Can it be done? With the right investments anything is possible. Get inspired by his money saving attitude and dividend goals.

7. Dividend Partisan


Last but not least, someone had to be #7, is Dividend Partisan. The Partisan currently owns 11 dividend stocks and has a top 20 list worth checking out. There could not be a better mission statement than what I’ve read here, and we wish them all the best.

That concludes our list of dividend blogs for today. If you have others that are worth mentioning please leave a comment below.

What Are Dividend Aristocrats?

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If you are relatively new to dividend investing, there is a good chance you might be wondering what, exactly, “dividend aristocrats” are. It is clear from the term that these are dividend stocks considered to be in a “higher class” when compared to other companies that pay dividends.

Dividend Aristocrats Index

Interestingly, dividend aristocrats are those listed on a special index. This index, published by Standard and Poor’s is called the Dividend Aristocrats Index. The main characteristic of this list is that those listed on it have consistently increased stocks over the course of the last 25 years. You are not going to find dividend stocks with yields in the double digits. In fact, you’ll be hard pressed to find very many dividend aristocrats with yields above 4% (although they do exist).

Historically, this index has outperformed the S&P 500. A lot of it likely has to do with the solid business models that many companies on the index have, as well as the fact that these businesses often feature safe business decisions. Also, you might notice that the list contains insurance conglomerates, health care products companies and consumer products.

Letting Dividend Aristocrats Guide You

If you look over the dividend aristocrats list, you might discover that it’s kind of a boring list. However, you will also notice that some of these companies have been paying out dividends for decades. Coca-Cola has increased its dividend every year for the last 48 years.

The aristocrats can offer some insight into which stocks are likely to weather a recession. Even though these stocks might see setbacks in stock price, along with every other company, during a stock market crash or a recession, these companies are also likely to recover. So they might be good choices when the market is down – and you can get more shares for less.

If you are building an income portfolio using dividend stocks, dividend aristocrats can be attractive if you are looking for a source of income that is relatively stable. While dividends are not guaranteed, there is nevertheless a good chance that your dividends will remain the same (and very likely head higher) if you invest in dividend aristocrats.

Getting Started

If you want to invest in dividend aristocrats, it’s fairly easy to get started. Many of these stocks have programs that allow you to use dollar cost averaging to buy portions of shares. For those without a large chunk of capital to use, this can be very helpful. You can start out slow, and gradually build up your portfolio.

Dollar Cost Averaging and Dividend Stocks

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One of the best ways to build up a dividend portfolio is to make use of dollar cost averaging. This technique allows you to build up your income portfolio slowly, and it is something that almost anyone can participate in. While you may not see huge inflows at first, over time you will notice that you begin receiving more and more income from your efforts at dollar cost averaging.

Dollar Cost Averaging

When you engage in dollar cost averaging, you can buy partial shares of a dividend stock. This means that if you have $150 to invest each month, and the average share of a stock is $60, you will get 2.5 shares of the stock when you buy. If the stock drops to $45, your next purchase will get you 3.33 shares. You end up with more shares. This means that your next dividend payout, which is based on the number of shares you own, will be bigger.

Of course, the flip side to dollar cost averaging is that when the stock price goes up, your money buys fewer shares. But, over time, it tends to even out somewhat. Besides, the main advantage to dollar cost averaging is that allows you to start an income investing portfolio without needing a large chunk of capital.

Watching Your Dividend Portfolio Grow

At first, you will not see great results. Your quarterly income from your dividend portfolio will generally be quite small. Many people in the early stages of dividend income portfolio often reinvest their dividends to boost the number of shares that they can buy. (For the long term, a DRIP program can lead to automatic reinvestment of your dividends.) This can speed up the pace at which you build up your portfolio. Later, you can start using your dividend payouts to meet your regular expenses.

In order to effectively grow your dividend portfolio, it is a good idea to figure out how much money you can invest each month. Make it a regular habit. Whether you can invest $50 a month to start, or $500, the idea is to begin building your portfolio. As you find ways to increase your month investment, as the number of shares you have increases, you will begin seeing larger dividend payouts. Eventually, you will be able to create a relatively stable source of income from your investments. At some point, you might even be able to stop considering your dividend portfolio as supplemental income, and think of it as your “regular” income.

Dividends Are Not Guaranteed

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One of the most important things to remember about stock dividends is that they are not guaranteed. It seems almost as though you have a right to dividends, but you don’t. Stock dividends are, in fact, something extra – a nice perk for shareholders.

Companies Decide Whether to Pay Dividends

The board of directors for a company choose whether or not to pay dividends. Many companies feel that regular pay outs are a good idea, since dividends can attract a certain type of investor. And, of course, companies benefit when investors put money into their operations. However, it is vital to remember, even as you build an income portfolio for stable cash flow, that companies can decide to stop paying dividends.

In some cases, a company may decide to cut the dividend rather than stop paying it altogether. A dividend is a share of the company’s profits. If a company has seen a drop in revenue, or wants to finance a major acquisition, the board of directors may decide to reduce the payout. This leaves more of the money for the company to do what it wants. You still benefit from stock price increases, but you may not get the dividend income that you expect.

Protecting Your Dividend Portfolio

Because dividends are not guaranteed, it is a good idea to protect your income portfolio from dividend cuts. You can create a relatively stable cash flow with the help of dividend paying stocks, but you still need to be prepared for cuts. Some of the things you can do to help protect yourself against dividend cuts include:

• Company diversity: Don’t rely solely on the dividends from a single company, or from a variety of companies in a single industry. Look for different dividend stocks from different industries so that your dividend income won’t be completely decimated by difficulties affecting one company or industry.

• Income diversity: While dividend stocks can make a great income source, you should consider cultivating other income streams. Include bonds and P2P lending in your income portfolio (provided you have the right risk tolerance). You can also look for other passive income streams online or from royalties.

The key to be diverse enough in your income so that the reduction in one source won’t completely cause problems. You might even consider maintaining a part-time job or doing some freelancing or consulting work to make sure have a relatively stable base of income.

Dividend stocks are a great investment in many cases, but you do have to remember that your payouts aren’t guaranteed, and plan accordingly.

Boost Your Retirement Savings with DRIPs

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My very first experience with dividend stocks came from a source I didn’t expect. When I opened a Roth IRA soon after being married, I chose a couple of different funds. To be honest, I didn’t really know what I was doing. I picked a growth fund and an income fund to go into my Roth IRA because I thought such a move would constitute diversification. It was only after the first year, when I looked at the yearly statement that I realized what had happened: DRIPs were part of the income fund.

Extra Money for My Retirement Account

I saw that one of the funds was paying dividends. But, instead of sending me a check, these dividends were automatically reinvested in the fund. I thought that was pretty cool, even though I didn’t actually know what was happening; all I knew was that I was paid extra, and it bought me more shares of the fund.

After doing some research on the term “dividends”, I realized that what I had was a DRIP. The dividend reinvestment plan associated with one of my funds was helping to boost my retirement account. And, because the fund is in a Roth IRA, the dividends aren’t taxed in the year they are earned. Each year, I read my statement to see how much in dividends I have earned, and see that they are reinvested.

One of the bonuses of this was that my retirement account didn’t take as big a hit as other accounts did. With half (yes, half) of my Roth IRA in an income fund full of dividend stocks, the recession didn’t affect my account as much as others’ accounts were affected. Indeed, I was able to see a big difference between the growth fund and the income fund during the recession.

DRIPs and Extra Money

Because DRIPs reinvest your dividends automatically, it is like getting free shares of the investment. When you have these types of stocks in your retirement account, it means you get more shares for your account. Later, when it is time to start withdrawing, you will find that your extra shares (received essentially for free) could easily translate into more money for you down the road.

Since I inadvertently invested in that income fund years ago, I’ve changed the way I do things. I still have that Roth IRA, but it’s not my only account (for many reasons). Learning about DRIPs has been helpful for me, and the discovery has led me to learn more about dividend stocks as a source of income now. There are many uses for dividend stocks, and it is a good idea to explore how they fit into your overall financial plan.

Consistent High Yield Stocks

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Every investor looking for income from their stocks likes consistency. Who wants to buy a stock and be concerned that the dividend could get cut or the stock could tumble lower.

Safe Dividend List – March

The safe dividend stock list has over 30 stocks that have been raising their dividend for 25 years or more. 6 of those stocks have a dividend yield over 4%.

The standout on the list has a 100 point Top Dividend rating again this month. With a yield over 7%, 5 year dividend growth rate of 64% and a 3 year net income growth rate over 20% this stock is hard to ignore. Plus its up over 30% in the last year.

Most of the stocks on the safe dividend list have seen big gains over the last year. Big gains plus big yields makes for a very attractive stock.

Top 100 Dividend Stocks

We had 5 stocks top out at 100 points in March on the top 100 dividend stock list. Two of these stocks come from the safe list. One of the other three is a REIT, one is a beverage company and the last is a Energy company. The REIT stock shows a high payout ratio but remember that REITs pay out all of their income so there is nothing to be concerned about.

Each of these stocks show high dividend growth and great returns over the last year which is why we can give them 100 point ratings.

To get access to this information and start researching these high yield stocks become a member here: Top Dividend Stocks

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Reporting Dividends on Your Taxes

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It’s tax time! If you have earned money from dividends in the past tax year, you will need to report that income. The IRS expects that you will report all of your income on your tax return, and dividend income is no exception. Reporting your dividends is fairly straightforward.

Form 1040, Line 9

There is a space for you to fill in your dividend earnings on the front side of your Form 1040, on Line 9. This income will affect your adjusted gross income (AGI). It’s important to keep track of this income. Luckily, it should be reported to you on the 1099-DIV statements you should receive from each company reporting dividends.

As you report your dividends, you will notice that there is a Line 9a and a Line 9b. Your ordinary dividends belong on Line 9a. It is important to note that all dividends are considered “ordinary.” Line 9b is for qualified dividends. These dividends are those that are taxed at the long-term capital gains rate, rather than being taxed as regular income. This can help you lower your tax liability.

You can figure out whether or not your dividends are qualified by checking your 1099-DIV. Ordinary dividends are listed in box 1a, and qualified dividends are listed in box 1b. Add up the totals from each of your 1099-DIV forms and put the totals in the appropriate lines on your tax form.

Schedule B

Realize, too, that you will have to file a Schedule B with your Form 1040 if you receive more than $1,500 in dividend income. Once you reach this point, you will need to detail your dividend earnings.

You should note that your interest earnings are also reported on Schedule B if they exceed $1,500. You don not total interest earnings with dividend earnings. It is important to make this distinction. You only have to fill out the Schedule B if one or the other is at least $1,500. This means that if you have $1,400 in dividend earnings and $350 in interest earnings, you will have no need to file a Schedule B. The total of the two may exceed $1,500, but since you don’t have to add them together, and neither of them reach the threshold, there is no reason to file a Schedule B.

As always, if you have questions about what you should file, and how you should report your earnings, it is a good idea to talk to a tax professional.

Pad Your Emergency Fund with Earnings from Dividend Stocks

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One of the most important things you can do for your personal financial situation is to build up an emergency fund. An emergency fund can provide you with a source of money when you run into tough economic times. Having stable cash flow with dividends can also be helpful, but you might not have built up enough to cover all of your expenses. Until you reach a point where your dividend earnings can cover your income needs, it is important to have a back up plan in the form of an emergency fund. Honestly, you should have an emergency fund anyway – just in case your dividends are cut.

Using Dividend Earnings to Pad Your Emergency Fund

One way you can help build up an emergency fund, without taking as much money away from other things you find important, is to use the money from your dividends. When you start building up an income portfolio using dividend stocks, you are unlikely to earn a great deal at first. You can divert some of those earnings (or even all of them) into your emergency fund. This will help you pad your emergency fund while, at the same time, helping you develop your income stream from monthly dividends.

If you lose your job, or suffer some other financial catastrophe, the money you have build up in your emergency fund will help you meet your expenses. And, because you have been building an income portfolio during that time, you will also have a cultivated source of dividends income. This may not completely replace the income that you had, but it will help immensely as you look for other sources of cash flow.

You can maximize your emergency fund by keeping it in a high yield savings account, or developing a CD ladder. While the interest you earn from these types of savings products will not be great, it will still often beat what you would get with a traditional savings account. There are other types of accounts you can consider for your emergency fund, including interest bearing checking accounts and some types of bond funds. (There are some bond funds, like GNMA, that allow you to write checks.) However, you need to be careful since bond funds will not be FDIC protected. One of the points of having an emergency fund is that it is accessible and it is protected so that you get your money back if something happens to the financial institution.

Your dividend earnings can be a great way to fund an emergency savings account. Dividend earnings represent a regular source of income, and can be used to help you improve your financial stability.

When Can I Retire

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One of the pressing money questions that many people have is the following: When can I retire? Retirement means something different to each person.

When figuring out when you can retire, it is important to consider what your idea of retirement is, and then focus on making your own personal vision of retired life come true. With the right planning, you should be able to live the life you want after you retire.

There are a few items to consider as you attempt to answer the question, when can I retire?

  • What you want to do.
  • How much money you have now.
  • What you save in order to have what you need later.
  • Your debt obligations, and how fast you can pay them down.
  • Your regular expected expenses (groceries, utilities, etc.).
  • How you spend your money.
  • The lifestyle you want during retirement.
  • Where you expect your income to come from.

Keep these considerations in mind as you make your plans. They will help you stay focused at each stage of the planning, providing guidance.

Understanding What You Need to Retire

Your first step is deciding what you need to retire. Consider your expected expenses, as they relate to what you want to do when you stop working. Someone who wants to downsize and move into a retirement community, while adopting an inexpensive hobby and traveling only occasionally to visit family has completely different needs that someone who wants to travel the world, living in various countries for extended periods of time.

retired couple Think about what you want you want to do, and estimate what it will cost to make it happen. You can use your current expenses as a good baseline. You can assume that your utility costs, housing costs and some of your other costs will be somewhat similar. If you plan to have your home paid off by the time you retire, you can consider what you might do with a monthly mortgage payment you no longer have to make. It could go toward paying rent in another country, or for airplane tickets.

Many people figure that they will have expenses similar to what they pay now during retirement; careful wealth management means that they simply change what they are spending their money on as they approach retirement, paying off obligations so that the money can be spent on other pursuits.

How Much Money Do You Need to Retire?

Rather than thinking about amassing one huge nest egg, it can be helpful to think of your retirement needs based on monthly income. When can I retire? is a question that depends on when you will have the monthly income you need to keep things going. This income can come from what you earn from your retirement accounts as well as from sources of passive income that you might have cultivated.

Many people try to accumulate $1 million when they retire. If you manage to build a nest egg with $1 million, and you withdraw 4% a year, that’s $40,000 a year – about $3,333.33 a month. Is that going to be enough for you to meet your dreams when you retire? For some people, especially those who have no debt and are careful about their expenses, that is more than enough, even when travel is involved.

You can figure in Social Security as well. Look at your most recent Social Security statement to see your estimated benefit, and when it starts. It might be that if you wait on a sufficient Social Security benefit, you will be much older when you retire. Or Social Security may not even be around when you retire.

At any rate, add up your expenses, and decide how much money you need each month to live on. If you decide that you will need $4,500 to live on, you can see that simply amassing $1 million in your nest egg isn’t going to do it – unless you are willing to withdraw more than 4% each year, running a greater risk of running out of money before you run out of retirement. By planning now, you can begin to develop the resources that will help you enjoy a successful retirement.

Developing a Monthly Income for Retirement

Part of your retirement plans should revolve around building up a nest egg in tax advantaged retirement accounts. 401ks and IRAs are great tools that can help you put your money to work for you. You can use an online retirement calculator to see how long it would take you to get the nest egg you are looking for. These calculators will also help you estimate how much money you will need to set aside each month if you want to retire at a certain age. You then need to decide what you are willing to give up now for a better retirement later.

You can also consider building alternative income streams now that will be available later. This type of income diversity can be helpful in the event that there is a stock market crash just before your retirement. Instead of finding almost your entire retirement income at the mercy of the whims of the market, you can have supplemental sources of income. Alternative income streams can include income from a business, real estate, a web site or the best dividend paying stocks.

Another benefit to cultivating alternative income streams is that you can retire sooner. If you withdraw funds from a tax advantaged retirement account early, you will have to pay penalties. And, in order to get better Social Security benefits, you need to wait longer. If you have alternative income, you can begin the process of retirement sooner, since you will have money, penalty-free, at an earlier date.

Really, the key to answering the question, When can I retire? is figuring out when you want to retire, and then making it happen. Decide when you would like to retire, and begin setting aside money, paying down debt and cultivating multiple income streams so that you can reach your goals.