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Living Off of Dividends [Retire Early with Dividends]

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  By Forrest | Last Updated:  December 6, 2021

Are you looking to reach financial freedom and live off of dividends?

Living off dividends can be easier to achieve than you might think. While it will take some strong discipline and strategy to get there, you’re sure to reach your goals if you stick to it.

In this post, I’ll explore how to live off of dividends, easy ways to grow your dividend portfolio, and other investments to consider to grow your passive income. Let’s get started!

Living off Dividends

What Are Dividends?

Dividends are payments made directly to shareholders of a stock whenever a company makes a profit. Whenever a business makes a profit, they have a choice to make.

They can choose to reinvest that money back into the business in attempt to grow it further, or they can issue dividend payments to individual shareholders of the stock.

A dividend is a cash payment that investors will receive directly into their brokerage account when issued.

Not all stocks will pay dividends to investors.

Dividend paying stocks tend to be more mature and have a strong track record of turning a profit.

Companies that are in their earlier stages of growth will withhold dividends because they can increase the value of the company by more than the dividends worth.

Some companies might offer a very small dividend. For example, Apple has a dividend yield of less than 1%. The majority of value that Apple creates is through the increase in the stock price of the company.

Finding companies with a high dividend yield can be a good way to invest for passive income and live off of dividends.

It’s important to note that the dividend yield calculation is based on the current stock price. If the stock price of a company is over $100, say $125, and the dividend yield is 5%, you would not earn $5 but rather $6.25. Many new investors can mistake how much money they need to start living off dividends because of this.

How Much Money Do You Need to Live Off of Dividends?

If you want to starting living off of dividends, you’ll need to do some math before you get started.

First, you’ll need to determine your needs. For example, a family that has $100,000 of expenses annually will need much more dividend income than an individual who has $30,000 in living expenses.

Try to determine your ideal life and think about your annual spending habits. If you want to live a lavish lifestyle with a nice home and plenty of money, that’s okay – just be sure to account for your future spending so you can live off dividends.

Next, you’ll want to find some dividend stocks or dividend ETFs to invest in. You’ll want to make note of the current dividend payments the stock currently offers.

Once you find a few dividend stocks to invest in, you can multiply the dividend payments by the number of shares you own. This will determine your annual dividend payout so you can decide if it is enough.

For most individuals, you’ll need between $1 million and $2 million to live off dividends.

Best Investments that Pay Dividends

Now that you know how much you need to start living off dividends you might be wondering what investments pay dividends. There are a few main options to consider.

  • Stocks
  • ETFs
  • REITs
  • Mutual Funds

How to Start Dividend Investing to Start Living off Dividends

Getting started with dividend investing is easier than you might think. While you’ll need some money to get started, for many accounts it can be $10 or less.

Register for a Brokerage Account

The first step in generating dividend income is to open a brokerage account. There are many platforms you can use to invest in the stock market but my favorite is through Acorns.

Acorns allows you to invest in all of the top dividend stocks to grow your investment portfolio. However my favorite feature is that it will round up your purchases automatically and invest the spare change for you – without having to do anything.

For example, if you spend $2.79 at the grocery store, your purchase will be rounded up to $3 and the $.21 difference will be invested into dividend stocks.

As a bonus, you’ll get $10 completely free to invest when using the link below!

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When opening a brokerage account, you’ll need all of your basic personal information to get started.

Find Dividend Paying Stocks

To grow your dividend income you’ll want to find stocks with a solid dividend yield.

A dividend yield is a measurement that describes a percentage of dividend payments compared to the share price of the stock. For example, if a stock has a dividend yield of 4% and the share price of the stock is $100, you can expect a $4 dividend payment each year.

Dividend yields measure the annual dividend payment however some dividend stocks will choose to pay dividends more frequently.

You can find many monthly dividend stocks to take advantage of compound interest.

Related: How to Make $500 a Month in Dividends

Choose an ETF with High Dividend Yields

Finding individual stocks with a high dividend yield is a good way to generate dividend income – but it comes with a cost. If something happens to the company or business and profits start declining, your dividend payments could be in jeopardy.

By investing in exchange traded funds, mutual funds, or real estate investment trusts you can spread your risk out over many different dividend stocks. This way, if one dividend stock suffers, your entire portfolio won’t take a massive hit.

Let Your Money Grow by Reinvesting Dividends

Whenever a company issues a stock dividend you have a choice, you can take the cash payment to yourself or you can choose to purchase more shares of the dividend stock to boost your dividend income even further.

By reinvesting your dividend payments your income growth will skyrocket and you can easily make $1,000 a month in dividends.

If you want to start living off dividends, dividend reinvestment is essential to reach the wealth you need to live off dividends.

How Long Does it Take to Start Living Off Dividends?

Now that you know how to get started with dividend investing, you might be wondering how long it takes before you can start living off dividends.

The answer to this question isn’t simple.

It will depend on numerous factors including the amount of money invested, the dividend yield of your stocks, and whether or not you choose to reinvest your dividend payments.

It’s possible to start living off dividends in just a few years if you can find the right stocks and have enough money to invest.

For most people, it can take some time to live off dividends.

For example, if you invest $10,000 into the stock market on dividend paying companies that pay $5 in dividends with a share price of $100, you could purchase 100 shares of the stock and generate $500 annually of dividend income.

This isn’t quite enough to live off dividends just yet.

However, if you used the $500 to purchase 5 more shares (assuming the stock is the same price), you would generate $525 the following year in dividend income.

The longer you hold and reinvest – the more dividend income you can generate through compound interest.

If you want to make $100,000 of dividend income in just one year and you invest in stocks that pay $5 in dividends annually with a share price of $100, you would need to invest $2 million to reach you goal and live off dividends.

Advantages of Dividend Stocks

Dividend paying stocks offer some advantages over other investments like growth stocks.

Frequent Cash Payments

Living off dividends is possible because of the cash flow you get from them.

Dividend stocks pay cash to investors that they can use to live and spend.

Other investments, like growth stocks or cryptocurrency, would force you to sell your investment to receive any cash compensation.

This can trigger a taxable event and can be time consuming and stressful.

It’s worth noting that dividend income is also taxable income but only on the amount of the dividend. You’ll want to keep this in mind when you pay taxes come tax season.

More Stability with Dividend Stocks

Dividend stocks tend to be more mature, and while that isn’t always a good thing, it can bring stability to your investment strategies.

If a business over-performs, they can also choose to raise the dividend.

When dividend increases happen, there’s a chance the stock price also increases. While some dividend paying companies are less likely to have a boom in growth, the opposite is also true. They are less likely to disappear overnight.

If you have an inheritance and want to retire, dividend stocks are a tremendous option. 

Easy Passive Income

Adding another income stream to your finances is a great way to diversify and make more money. By investing in a dividend stock, you can take the “set it and forget it” mindset to managing your portfolio.

You will earn passive income every year from your dividend income stream that you don’t have to work to get.

If you want to reach financial independence and live off dividends, this is a great way to achieve your goals.

Quality Dividend Stocks

Best Dividend Stocks for Your Dividend Portfolio

Finding quality dividend stocks can be a challenge for many dividend investors.

With so many options to choose from, it can be easy to get overwhelmed.

Below are some of my favorite individual stocks that pay dividends to boost your annual income.

Coca Cola

Coca cola is a great stock for your dividend strategy because it has a long history of paying dividends and raising them each year. The company also offers stability and safety as an investment.

You can purchase shares of Coca Cola for around $46.

The current dividend yield is 3.2% and the payout ratio is around 60%.


Walmart is a great stock to own for those looking for income and safety.

The company has paid dividends every year since 1974 and has a current dividend yield of 2.2%.

The payout ratio is around 35%.

You can purchase Walmart for around $97 per share.

The company is a great way to get exposure to the retail sector which isn’t going away tomorrow.


I love McDonald’s for one reason – it’s a simple stock.

It’s easy to understand what the company does, and it has a long history of paying dividends.

The company also has a current dividend yield of 2.8%. The payout ratio is around 48%.

You can purchase McDonald’s for around $168 per share.


AT&T is a great telecom stock to own for your dividend portfolio.

The company has paid dividends every year since 1984 and has a current dividend yield of 5%. The payout ratio is around 75%.

You can purchase AT&T for $32 per share.

Bank of America

Bank of America is a great bank stock to own for dividend investors looking to live off dividends.

The company has paid dividends every year since 2009 and has a current dividend yield of 2.4%. The payout ratio is around 40%.

You can purchase Bank of America for $29 per share.

How to Become a Successful Dividend Investor

Becoming a successful dividend investor won’t happen overnight.

You’ll need to follow a few tactics to maximize your returns and grow your income stream.

Start Investing As Early as Possible

Time is your biggest advantage when it comes to any form of investing. The longer your assets have to grow, the more you can generate in compound interest.

Take a look at the chart below to get an idea of why investing early is essential to live off dividends.

Compound Interest with Dividends

You can see that the first few year see steady income growth but towards the end of the chart your income begins to grow exponentially.

If you want to start living off dividends – investing early is key.

Related: Best Ways to Build Wealth in Your 40s

Reinvest Annual Dividend Income

To optimize your dividend investing strategy, reinvesting your dividend payouts to essential to growing your portfolio.

By reinvesting your dividends, you’re not only ensuring that you’re getting the highest yield possible on each share of stock but also allowing it to grow faster over time.

Having a dividend reinvestment plan is one one of the best ways to grow your interest income and drastically increase the value of your stock portfolio.

Use Mutual Funds

Mutual funds are a perfect way to optimize your asset allocation strategy.

A mutual fund is essentially a group of stocks that are lumped together so you can easily invest in many stocks. You can find mutual funds with quality dividend stocks to invest in by doing some quick research.

Some of my favorite dividend mutual funds are Vanguard Dividend Growth, Fidelity Spartan 500 Index Fund – Investor Class, and T. Rowe Price Dividend Growth Fund.

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Disclosure: This link is an affiliate link, meaning, at no additional cost to you, I will earn a commission if you click through and make a purchase.

Increase Contributions

If you want to grow your dividend income stream, adding more money to your portfolio is vital.

While you can take advantage of compound interest, adding more money to your portfolio will further increase your average annual income. If your current income is large enough and you have leftover money each month – consider adding this money to your stock portfolio.

Look for Quality Stocks with a Consistent History of Paying Dividends

When looking for stocks to add to your portfolio, it’s important to focus on quality.

A company that has a consistent history of paying dividends is a good indication that it will continue to do so in the future. If you want to get dividends forever, it starts with finding quality dividend stocks.

A few metrics you might want to look at include the average dividend yield of the stock and the dividend payout ratio of the stock.

Dividend safety can be difficult to predict but good companies with a high dividend payout ratio and tend to have stronger dividend safety.

If you’re looking for an easy way to find quality stocks, you might consider one of the dividend aristocrats. These stocks are part of the S&P 500 and have paid stock dividends to investors every year for the last 25 years.

If you want help investing in dividend paying investments, check out the video below!

Find Stocks with Dividend Growth Potential

While finding stocks with high dividend yields and a solid history of paying dividends, you’ll also want to find options with an average growth rate that is above average.

The average growth rate for many dividend stocks tends to be around 7% but there are some stocks that have higher growth rates.

The average dividend yield of a stock is not the only thing that matters when it comes to finding investing opportunities. For example, if a stock has a current average yield of 3%, that doesn’t mean it will stay that way. They could increase their dividend payments in the future.

Avoid Overpaying for a Stock

If you want to live off dividends there’s no use in overpaying for each share of stock.

Look for stocks with a consistent history of paying dividends that are priced at or below fair value.

To get an idea of how much you should pay for shares of any security, take a look at the company’s P/E ratio and the average dividend yield of the stock.

Purchase Stocks the Right Way

If you have a large lump sum of money to invest, you might be tempted to drop all of it into your brokerage account and pull the trigger. This method of investing can lead to more volatility in your portfolio.

Because stock prices can change rapidly over the course of a few weeks, many investors prefer dollar cost averaging. With this method, instead of purchasing a large number of shares at once, you’ll make more frequent smaller purchases to average out the cost of your stocks.

Find Dividend Stocks That Pay Monthly Dividends

Dividend stocks that pay monthly dividends will compound more frequently, allowing you to grow your portfolio faster.

Some investors prefer to receive monthly dividends over quarterly or annual payments. If you’re thinking about living off dividends, then adding these stocks to your portfolio might be a good idea.

How to Earn Dividend Income

Other Investments to Make Passive Income

While dividend stocks are a great investment, there are plenty of other options to grow your income and make more money. Below are some of my favorite investing options to grow your portfolio.

Investing in Real Estate

Real estate is a great passive income investment to pad your retirement income.

There are many different options when it comes to real estate investing. You can purchase rental properties, invest in a real estate investment trust or become a landlord.

Real estate is a great way to create passive income and it’s a tangible asset that you can see and touch. This makes it easier to sell if you need to liquidate your assets quickly.

You might be wondering how much money you can make with real estate investing. And ultimately, it will depending on the type of investing you choose. For methods with more work, you can expect larger returns. For methods that are more passive, your returns might be lower – but you’ll have less work and headache.

It’s common to see returns of anywhere from 7% to 15% with real estate investing. When compared to the stock market – your investment income can be slightly larger with some real estate investments.

My favorite way to invest in real estate is through Fundrise. Fundrise has been around since 2010 and it has a strong history of delivering profits to investors.

With Fundrise you can invest in a variety of real estate assets without needing a fortune to get started.

If you want to grow your annual income and optimize your investment strategy, sign up for Fundrise below!

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Invest in Art to Make Passive Income

Art investing is a newer form of investing that has seen tremendous growth in the past few years.

While you won’t have the same consistency as dividend investing, with art – you can make a good return on your investment if the market is trending correctly.

Art investments are a great way to diversify your investments and give you a new line of passive income if dividend stocks are the majority of your portfolio.

You might be wondering how to get started with investing in art. My favorite platform, Masterworks, is a great way to invest in some of the most famous pieces of art on the market. Since it’s inception, it has shown strong returns greater than 15% annually.

You can check out my full review of Masterworks to learn more or register with the link below to get started.

YieldStreet is one of the best alternative investments to grow your money with an average return of 15%!
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Disclosure: This link is an affiliate link, meaning, at no additional cost to you, I will earn a commission if you click through and make a purchase.

Invest in Index Funds

Index funds are a diverse way to invest and make money in the stock market.

While the dividend income from index funds will be less than investing in dividend growth stocks – you’ll still receive some dividend income.

Index funds make you money by increasing in price. Index funds are a great addition to your retirement portfolio and they are a perfect way to diversify your entire stock portfolio.

In many cases non dividend paying stocks can outperform those that pay stock dividends in terms of stock prices.

Invest in Cryptocurrency

Cryptocurrency is an exciting and new way to invest your money if you can handle the ups and downs that come with it.

Cryptocurrency can be a good way to round out your retirement portfolio by adding an additional income stream to the mix. However, cryptocurrency tends to be extremely volatile so you’ll want to be careful when investing.

If you want to start investing in cryptocurrency, I recommend Coinbase. Coinbase allows you to invest in all of the most popular coins including Bitcoin, Ethereum, and more.

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Consider Bonds

Purchasing bonds can be another way to generate passive income and earn routine interest payments from your money.

Between corporate bonds, government bonds, and municipal bonds – there are plenty of options to grow your annual income.

Bond interest rates will vary depending on the risk involved but it’s possible to find some bonds with interest rates around 2% to 5%.

For those looking for retirement income, bonds are a good way to safely invest and protect your money against inflation. Because the inflation rate has a target of 2% annually, using an asset allocation that contains bonds is a good strategy to keep your money safe.

Related: Best Ways to Invest $100k to Make $1 Million

How Hard is it to Live Off Dividends?

If you want to live off dividends, you’ll need to have a good understanding of how your dividend strategy works. Depending on how much money you have to invest and your normal living expenses, living off dividends can be easier for some people and more difficult for others.

How to Get Money to Invest

If you don’t have a ton of money to invest, there are several ways to make more money or get free stocks to invest.

Get Free Stock with Acorns

Acorns will give you free stock when you create a new account.

If you don’t have any money to invest, this can be a great way to get started!

Acorns is an investing platform that allows you to easily invest in all of your favorite stocks, mutual funds, ETFs, and more. Register below to claim your free $10 stock!

Acorns automatically rounds up your purchases and invests for you. Get started below to claim $10 in free stocks!
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Disclosure: This link is an affiliate link, meaning, at no additional cost to you, I will earn a commission if you click through and make a purchase.

Start a Side Hustle to Buy Dividend Stocks

Starting a side hustle like flipping furniture or selling candles from home can be an excellent way to purchase dividend paying stocks for your initial investment.

Depending on the side hustle, you might even be capable of turning it into your primary source of income – perfect for those who don’t want to work anymore.

Some of my favorite side hustles include delivering food with Doordash, pet sitting with Rover, freelance writing, and blogging.

Some side hustles can pay over $30 per hour – which is a good income to supplement your full time job.

Checkout these side hustles to boost your income!

Reduce Expenses to Save Money

While reducing your living expenses won’t necessarily make you money – it will leave more money in your bank account that can be used to invest.

Some of the most costly living expenses include your mortgage or rent payment, groceries, utilities, and entertainment costs.

One of the easiest ways to reduce your living expenses are by using apps like Truebill to have your bills automatically negotiated for you. In addition it can help you notice unwanted subscriptions you might be capable of cutting.

Truebill (Now RocketMoney) helps you take back control of your finances and start budgeting with ease. Register below to get started!
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Disclosure: This link is an affiliate link, meaning, at no additional cost to you, I will earn a commission if you click through and make a purchase.

Final Thoughts on Living off of Dividends

Living off of dividends can be a dream for many people. Being able to do whatever you want with your day is an amazing feeling that most people strive for.

By investing in dividend paying stocks you can live off of your dividends once your portfolio reaches a certain point.

It can take some time to start living off dividends so you shouldn’t expect to become a millionaire overnight.

However, if you have the patience and discipline – anyone can start living off dividends. What’re you waiting for?

Forrest is a personal finance, entrepreneurship, and investing expert dedicated to helping others obtain life long wealth. He has a Bachelor's degree in business and has been featured in many popular publications including Forbes, Business Insider, Bankrate, CNET Money, and many others. To learn more about Forrest, visit the About Me Page for more info.
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