Living off Dividends

How much stock must you own to live off dividends or supplement your income with dividends? Obviously the answer depends on how much money you must have. But a quick computation using the following equation will help you determine the size of your dividend-paying portfolio required to generate a given amount of money:

Dollar Value of Portfolio = Required Dividend Amount / Dividend Yield of the Portfolio

For example, if you required $12,000 per year and the dividend yield were 2%, you would need a portfolio worth $600,000. The current yield on the S&P 500 is around 1.5% so if you "owned the market" with an index fund or ETF, you would need a $800,000 portfolio to make $12,000.

If you want more dividends than a portfolio that tracts the market can provide, you could build a portfolio that includes:

High-yielding individual stocks such as electric utilities, natural gas utilities and REITS.
Specialized dividend-paying funds such as the Dow Jones Select Dividend Index Fund (DVY).
Individual stocks that consistently raise dividends.