How Much Money Would You Need to Retire Off Stock Dividends?

The last ten years have been the era of the side-hustle. Uber, Doordash, dropshipping, you name it. But what if you could achieve a side-hustle level of income — or even more — without ever having to lift a finger? For many dividend investors, this is the dream. Retiring off of stock dividends may sound far fetched, but it is possible. Owning shares of companies that pay stock dividends allow investors to receive payments on a regular basis simply for owning a stock. However, let’s make this clear up-front: There is no such thing as a free lunch — and dividends have their fair share of pros and cons. Still, for investors who prefer a hands-off approach, dividend retirement could be a suitable goal. With that in mind, some of you might be asking, “How much money would it take to retire off of stock dividends?” We’re going to answer that in this article.

What is a Stock Dividend?

“A stock dividend is the reward you get for owning certain stocks.”

A stock dividend, also known as a stock split dividend or bonus share, is a corporate action through which a company distributes additional shares of its stock to its existing shareholders. This distribution is usually made on a pro-rata basis, meaning that shareholders receive more shares in proportion to their existing ownership in the company.

Unlike cash dividends, which involve distributing a portion of the company’s profits to shareholders in the form of cash payments, a stock dividend involves issuing additional shares to shareholders without any immediate cash exchange. The main purpose of a stock dividend is to adjust the company’s stock price and increase liquidity in the market, making the shares more accessible to a wider range of investors.

Stock dividends are often expressed as a percentage. For example, a 10% stock dividend means that for every 100 shares a shareholder owns, they would receive an additional 10 shares as a dividend.

How Much Can You Make Off of Stock Dividends?

Technically, the answer to this is infinite: There’s no cap to the amount of money a stock will pay you in total — it’s simply a matter of how much money you have invested in the company, and what percentage that company’s dividend payment is. Apple, for instance, pays $0.24 cents per quarter per share owned. It comes out to 0.54% per year. So if you invested $10,000 in Apple all year long, by the end of the year, you would receive about $54. Of course, that doesn’t account for price appreciation of the stock itself! YTD, Apple shares are up 43%. Out of $10,000, that would grant you an additional $4,300 — combined with the dividend. Not bad for simply holding onto a stock. 

Of course, there are other stocks that pay much higher dividends than Apple. For instance, Altria, the makers of your favorite tobacco products, pay a dividend of 8.48% per year. So if you had $10,000 invested in Altria stock over the course of a year, you could expect to pull in about $848 by the end of the year. Here’s the caveat — many stocks that pay a high dividend don’t perform like the growth-driven tech stocks that many investors flock to. Instead of investing all of their money in growing their business, they’re siphoning off a portion of that cash to you, the investor. Altria makes a great comparison — year-to-date, Altria is down -2.68%. Using the figure from our $10,000 investment example above, that would mean a loss of $268. In this instance, the dividend does make up for the loss, but when you look at a stock like Apple’s hefty gains, it becomes clear why dividends aren’t the “free lunch” that some make it out to be. 

Still, when done correctly, dividend investing takes the “chance” out of picking the right stocks, and helps cushion the blow significantly during swift market downturns.  In times where the market falls, and even when the economy enters a recession, dividends have a proven track record of staying steady. In fact, dividends accounted for 54% of market returns during periods where inflation was above 5%. In other words, when you don’t want to sell the stock, but you need extra cash, dividends are there. 

What Stocks Pay the Highest Dividend?

For this, we’re only going to talk about stocks in the S&P 500. Ideally, as a dividend investor, you want stability. If you want a rip-roaring ride where you can expect to gain a significant percentage of your profit from stock appreciation, there are far better outlets than dividend stocks. When you want companies with a proven track record, you look to the S&P 500. 

Highest Paying Dividend Stocks (S&P 500)

Ticker	Company	Annual Dividend Yield
DVN	Devon Energy	9.71%
MO	Altria Group	8.49%
VZ	Verizon	7.99%
CTRA	Coterra Energy	7.81%
T	AT&T	7.75%
KEY	KeyCorp	7.02%
PXD	Pioneer Natural Resources	6.93%
LNC	Lincoln National Corp	6.66%
WBA	Walgreens Boot Alliance	6.53%

Of course, for investors who prefer a slighter higher yield in companies that may have more growth potential, there is always the Russell 2000. 

Highest Paying Dividend Stocks (Russell 2000)

Ticker	Company	Annual Dividend Yield
REFI	Chicago Atlantic Real Estate Finance, Inc.	12.07%
DX	Dynex Capital, Inc.	11.98%
BGFV	Big 5 Sporting Goods Corporation	11.90%
CALM	Cal-Maine Foods, Inc.	11.36%
ABR	Arbor Realty Trust, Inc.	10.27%
FBRT	Franklin BSP Realty Trust, Inc.	10.10%
OUT	OUTFRONT Media Inc.	9.89%
ALX	Alexander’s, Inc.	9.28%
SPOK	Spok Holdings, Inc.	9.03%

There’s on more class of dividend stocks that you should know about if you plan to dive into the world of dividend investing — the dividend aristocrats. 

What Are Dividend Aristocrats?

Dividend Aristocrats are a select group of publicly traded companies known for their consistent track record of increasing dividends to shareholders year after year. These companies typically have strong financial performance, stable earnings, and a history of maintaining or growing their dividends even during economic downturns. Being designated as a Dividend Aristocrat is a testament to a company’s financial stability and commitment to rewarding shareholders with consistent dividend payouts.

To be classified as a Dividend Aristocrat, a company usually needs to meet certain criteria set by organizations such as S&P Dow Jones Indices. These criteria might include:

Length of Dividend History: A company needs to have a history of consistently paying dividends for a certain number of years, often around 25 years or more.

Dividend Growth: The company should have a record of increasing its dividends over time, demonstrating its ability to generate consistent and growing earnings.

Market Capitalization and Liquidity: Companies must have a minimum level of market capitalization and trading liquidity to ensure they are representative of the broader market.

Sector Diversity: The list of Dividend Aristocrats aims to cover a variety of sectors, so a company’s inclusion might also depend on its industry representation.

Dividend Aristocrats are often considered by income-oriented investors as attractive investment opportunities due to their historical stability and the potential for growing dividend income over time. 

60 Dividend Aristocrat Stocks

Ticker	Company	Annual Dividend Yield
MMM	3M	5.75%
AOS	A. O. Smith	1.64%
ABT	Abbott Laboratories	1.92%
AFL	Aflac	2.20%
APD	Air Products and Chemicals	2.44%
ALB	Albemarle	0.82%
AMCR	Amcor	5.05%
ADM	Archer-Daniels-Midland	2.08%
ATO	Atmos Energy	2.52%
ADP	Automatic Data Processing	2.00%
BDX	Becton, Dickinson and Company	1.28%
BRO	Brown & Brown	0.65%
BF.B	Brown-Forman	1.16%
CAH	Cardinal Health	2.16%
CAT	Caterpillar	1.82%
CB	Chubb	1.70%
CHD	Church & Dwight	1.13%
CINF	Cincinnati Financial	2.75%
CTAS	Cintas	0.93%
CLX	Clorox	3.29%
KO	Coca-Cola Company	3.00%
CL	Colgate-Palmolive	2.50%
ED	Consolidated Edison	3.55%
DOV	Dover	1.40%
ECL	Ecolab	1.15%
EMR	Emerson Electric	2.14%
ESS	Essex Property Trust	3.82%
EXPD	Expeditors International	1.17%
XOM	Exxon Mobil	3.31%
FRT	Federal Realty Investment Trust	4.17%
BEN	Franklin Resources	4.27%
GD	General Dynamics	2.33%
GPC	Genuine Parts	2.43%
HRL	Hormel Foods	2.69%
ITW	Illinois Tool Works	2.11%
IBM	International Business Machines	4.63%
JNJ	Johnson & Johnson	2.75%
KMB	Kimberly-Clark	3.68%
LEG	Leggett & Platt	6.18%
LIN	Linde	1.33%
LOW	Lowe’s Companies	2.00%
MKC	McCormick & Company	1.79%
MCD	McDonald’s	2.10%
MDT	Medtronic	3.31%
NEE	NextEra Energy	2.72%
NUE	Nucor	1.20%
PNR	Pentair	1.23%
PEP	PepsiCo	2.74%
PPG	PPG Industries	1.85%
O	Realty Income	5.14%
ROP	Roper Technologies	0.55%
SPGI	S&P Global	0.92%
SWK	Stanley Black & Decker	3.27%
SYY	Sysco	2.71%
TROW	T. Rowe Price Group	4.28%
TFT	Target	3.29%
VFC	V.F.	6.18%
GWW	W.W. Grainger	1.04%
WMT	Walmart	1.41%
WST	West Pharmaceutical Services	0.19%

Now that you know the top dividend paying stocks, you may be thinking about rushing in to cram your portfolio full of “guaranteed money” dividend payers. Before you do that, you should know that there is no such thing as “guaranteed money” — and the road to dividend retirement may be a bit steeper than you think.

How Much Money Would You Need to Retire Off of Stock Dividends?

The first question you’ll need to ask here is “how much money do I need to retire?” That answer is going to be different for everybody based on bills, healthcare needs, geographical location, future plans, and how much spending money you want. However, the average retiree spends about $50,000 per year according to recent statistics — so we’ll use this figure as a rough example.

Next, we’ll need to know exactly what the dividend yield of what you’re investing in is. If you were to invest in a basket of the dividend aristocrat stocks, you would end up with an average dividend yield of around 3%. In order to retire off of dividends at a 3% dividend yield (assuming you need $50,000 per year), you would need to invest:

$1.67 million dollars.

That’s no small chunk of change for most people — however, it is possible for people who are building towards that goal. If you were to invest $5,000 per year, reinvesting all of the dividends earned back into your investments, it would take you roughly 40 years to reach that goal (not accounting for any stock appreciation — which likely would happen considering 40 years is a long time and reliable stocks have a propensity to rise over time). 

However, if you’re counting yourself out because of the admittedly long journey, there’s another well-known ingredient you can add into your dividend investing portfolio: covered calls.

Can You Sell Covered Calls on Dividend Stocks?

Covered calls involve writing a call option against a stock that you own, often out-of-the-money, in order to collect option premium on that stock — and you can write them against stocks you’re already receiving dividends from. In short, it’s another way to get paid for owning shares of a company. For instance, imagine you own at least 100 shares of a stock priced at $50 per share, and you write (or sell) a call option against the stock at a strike price of $60. Depending on the expiration date of the option you write, you’ll receive a credit. 

As an example of how covered calls can juice-up your returns, you can look at the JEPI covered call ETF, which pays roughly a 10% premium. The JEPI ETF writes covered calls for you and pays you out — after it pays the fund managers of course. At a 10% dividend style payment, you could reach your retirement goal of $50k per year with about $500,000 invested in JEPI. But if you’re willing to put in a mild amount of effort, there’s a significantly better way to use dividends and covered calls to your advantage.

Legendary options trader and co-founder of Market Rebellion Pete Najarian uses a covered call strategy to his advantage on a regular basis in his service, Pete’s Covered Calls. Inside Pete’s Covered Calls, Pete reveals his curated portfolio of winning stocks that combine stock appreciation, dividends, and covered calls to create a three-pronged approach to passive profit. Pete, with the help of a team of former floor traders and licensed CMT’s, uses technical analysis and options flow intel to determine the best strikes and expirations to sell covered calls against his stocks — allowing him and fellow Rebels to collect the maximum amount of premium at a minimal effort.

If dividend investing appeals to you, there are a variety of routes to consider. You could pick up a basket of your favorite dividend-paying stocks that still grow at a reasonable rate — your Apple’s and Microsoft’s. You could simply buy all 9 of the top paying dividend stocks in the S&P 500 or the Russell 2000. You could pick up a diverse portfolio of the many “dividend aristocrats” listed above, known for their stability and propensity to increase their dividend yield time and time again. Or you could use covered calls with the help of a team of stock market professionals to fast track your journey to the relaxed, dividend-collector lifestyle.

Try Pete’s Covered Calls today using this link.