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HOW TO LIVE OFF A DIVIDEND PORTFOLIO WITH CALCULATIONS

July 17, 2023
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Demo portfolio attached

 

Living off a dividend portfolio can be a great way to generate income in retirement or supplement your income stream. Dividend-paying stocks are companies that pay out a portion of their profits to shareholders in the form of dividends. By investing in a well-diversified portfolio of dividend-paying stocks, you can generate a regular stream of income without having to sell your shares.

 

In this article, we will discuss how to live off a dividend portfolio with some calculations.

 

Step 1: Determine your income needs

The first step to living off a dividend portfolio is to determine your income needs. Start by calculating your monthly expenses and subtracting any sources of income you have from other investments, or pensions. This will give you an idea of how much income you need to generate from your dividend portfolio.

 

For example, let's say your monthly expenses are R25,000 and you have R5000 per month in pension fund income or interest income. This means you need to generate R20,000 per month from your dividend portfolio. Multiply this amount by 12 to get the annual dividend income that you need from your portfolio.

 

Step 2: Build a diversified dividend portfolio

The next step is to build a diversified dividend portfolio. This means investing in a mix of stocks from different sectors and industries. A well-diversified portfolio can help reduce your risk and increase your chances of generating consistent income.

 

Here is an example of a diversified dividend portfolio:

  • 30% in Mining (e.g., BHP Billiton, Sibanye Stillwater & Exxaro)
  • 22.5% in Real Estate (e.g., Vukile &Stor-Age)
  • 20% in Retail (e.g., Shoprite & Woolworths)
  • 15% in Telecom (e.g., MTN & Vodacom)
  • 12.5% in ETFs (e.g., Satrix DivI Plus & Satrix Resi)

 

Step 3: Calculate your expected dividend income

Once you have built your dividend portfolio, you need to calculate your expected dividend income. This can be done by multiplying the current dividend yield of each stock by the number of shares you own.

 

In the attached you can see the current dividend yield on each stock. If you have R4m invested at each of the current yields, you will receive R301.6k before tax. The dividends earned on the ETFs in your TFSA will not be taxed. The balance of the dividend income will be taxed at 20%.

 

Also account for the fact that you cannot invest more than R500k into a TFSA.

 

Step 4: Monitor your portfolio

It's important to monitor your dividend portfolio regularly to ensure that your stocks are still performing well and paying consistent dividends. If a company cuts its dividend or experiences a decline in performance, you may need to consider selling that stock and replacing it with another one that has a better track record.

 

Conclusion

Living off a dividend portfolio can be a great way to generate income in retirement or supplement your income stream. By determining your income needs, building a diversified dividend portfolio, calculating your expected dividend income, and monitoring your portfolio, you can create a reliable source of income without having to sell your shares.

 

Remember, while dividend-paying stocks can provide a steady stream of income, they are not risk-free investments. It's important to research and invest in high-quality companies with a strong track record of paying consistent dividends. If you need to, consult with a financial advisor to ensure that your investment strategy aligns with your financial goals and risk tolerance.

 


 


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