How Long Would It Take To Build A $5000/Year Dividend Cash Flow?

By: ispeculatornew
Date posted: 12.07.2011 (5:45 am) | Write a Comment  (4 Comments)

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I thought it would be an interesting experience. Imagine that you were able to accumulate $1000/month that you would invest into a dividend portfolio such as the Ultimate Sustainable Dividend Portfolio, how long would it take you to generate a significant amount of money from that portfolio? For simplification purposes, I created a spreadsheet (that you can download later in this post) where an investor would be buying one stock, I used the ticker USDP (Ultimate Sustainable Dividend Portfolio). Obviously, an investor would not be buying only one stock. The objective however would be to buy a dividend growth focused portfolio similar to the one I presented some time ago. Thus, for simplification purposes, I used an investor that would be buying this type of portfolio from the start.

In any financial forecast, many different “assumptions” are necessary, here are the ones that I used for my sample investor which I will name John:

-John is able to invest $1000 per month
-Every month, John buys as many shares as he can of USDP
-The shares of USDP start at a price of $100 and pay a dividend yield of 2.86%
-Every year, the price of USDP increases by 2% and the dividend increases by 9% (much lower than the historical growth rates from the sustainable portfolio that we built)
-John reinvests all dividend payments until he achieves his “objective”, in this case $5000.

I think you could probably argue for any one of these assumptions and probably make a case on both sides (too conservative or too aggressive) but I personally think those are easily achievable with the right type of portfolio.

What It looks Like

I simply built a spreadsheet that would be used to calculate the portfolio’s value and payments. You can see an example here.

Obviously, you could easily increase the annual dividends that you will receive by increasing the amount that John invests every month or dividend growth rate. Even more dramatic would be increasing the amount of time. If John uses the same strategy for 20 or 30 years, you can see the dramatic impact it would have on the passive income generated. Yes, that is exactly why we always hear that the most important part of planning a good retirement is starting early. That has much more of an impact than any investing strategy.

Using Debt?

Next week, I will be sending over to the mailing list the impact of adding debt into this investing strategy… you can sign up now if you have not already done so, it’s free!

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  1. Comment by Doctor Stock — December 7, 2011 @ 7:39 pm

    Passive income has it’s place… but not to the neglect of making money. A combination would be ideal.

  2. Comment by IS — December 8, 2011 @ 4:57 am

    @Doctor Stock – No doubt, both are necessary:)

  3. Comment by Garrett — June 23, 2012 @ 5:03 am

    you do realize you’re asking me to put in $1000 a month for 7 years until i hit my income goal during a recession which will take up at least 3 of the 7 right? know that with a REIT I can get 10% easily right?

    How about you give me a more practical example? Like…if I put 5 grand into USDP in 20 years I’ll have a YOC for dividends ALONE of 14% meaning 14 grand for doing nothing and in 30 years I’ll have a CF of 44K…though keeping up a 9% growth rate for that long would be quite a feat.

    The numbers may not be as pretty as yours, but its a good demonstration of a realistic situation.

  4. Comment by IS — June 23, 2012 @ 12:32 pm

    @Garrett – Many thanks for the feedback, I do agree with most of what you write. Going heavy in REIT’s seems risky to me but the USDP is indeed a much superior solution in my opinion.

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