Question 1

What is a good dividend yield?

Accepted Answer

A good dividend yield typically ranges from 2-6%. Yields of 2-4% are common for stable blue-chip companies with consistent dividend growth. Yields above 6% may indicate higher risk or potential dividend cuts. Focus on sustainable yields backed by strong payout ratios (below 60% for most stocks).

Question 2

What are Dividend Aristocrats?

Accepted Answer

Dividend Aristocrats are S&P 500 companies that have increased their dividends for at least 25 consecutive years. There are currently about 68 Dividend Aristocrats, including companies like Johnson & Johnson, Coca-Cola, and Procter & Gamble. They represent the most reliable dividend payers in the market.

Question 3

How do I calculate dividend yield?

Accepted Answer

Dividend yield is calculated by dividing the annual dividend per share by the current stock price, then multiplying by 100. Formula: Dividend Yield = (Annual Dividend ÷ Stock Price) × 100. For example, a stock paying $2 annually at $50 per share has a 4% yield.

Question 4

What is DRIP (Dividend Reinvestment Plan)?

Accepted Answer

DRIP (Dividend Reinvestment Plan) automatically uses your dividend payments to buy more shares of the same stock instead of receiving cash. This compounds your returns over time - the new shares earn their own dividends, which buy more shares. Most brokers offer commission-free DRIP.

Question 5

How much money do I need to live off dividends?

Accepted Answer

To generate $50,000 per year in dividend income at a 4% yield, you would need approximately $1,250,000 invested. For $30,000/year, you need about $750,000. The formula is: Portfolio Needed = Annual Income Goal ÷ Dividend Yield. Higher yields require less capital but may carry more risk.

Question 6

What is yield on cost (YOC)?

Accepted Answer

Yield on Cost (YOC) measures your dividend yield based on your original purchase price, not the current market price. If you bought a stock at $40 that now pays $2.40/year in dividends, your YOC is 6% - even if the current yield based on today's higher price is only 4%.

Question 7

Are dividends taxed?

Accepted Answer

Yes, dividends are typically taxed. Qualified dividends (from U.S. companies held 60+ days) are taxed at long-term capital gains rates (0%, 15%, or 20% depending on income). Non-qualified dividends are taxed as ordinary income. Holding dividend stocks in tax-advantaged accounts like IRAs can help minimize taxes.

Question 8

What are monthly dividend stocks?

Accepted Answer

Monthly dividend stocks pay dividends every month instead of quarterly. Popular monthly payers include REITs like Realty Income (O), AGNC Investment Corp (AGNC), and Main Street Capital (MAIN). They are popular with income investors who want regular monthly cash flow.

Dividend Basics

What is a Dividend?