1

A friend asked me the other day, how much would I have to invest to get a dividend payment of 1000$ monthly. My friend is particularly interested in REITs (Real Estate Investment Trusts), and I personally own some O, Realty Income Corp, shares. I did a little math with O and came up with the figure 226,700 (approximately) dollars. The annual dividend of O is 2.8$/share, paid monthly (.23$ monthly, I rounded it to .25$/share to make my math easier) right now, and the cost is 56.68$.

But my friend isn't going to drop 226,700$ on anything, right now. He's (hypothetically) going to do it incrementally over time. Now I understand most of the forces at work in this question, and the moving parts that make it change over time, but the truth is I don't have the math chops to crunch the numbers (or even begin to build an equation) that would answer it. Let's say for argument's sake that, starting right now, and for the foreseeable future, the price and dividend growth remains the same and he buys 200$/month, as well as reinvesting the dividends, how long does it take to get to a 1,000 monthly dividend?

PS. I've separately figured that O enjoys a yearly average dividend increase of around .01$/month (1 cent a month), or .12$ annual dividend (12 cents for the year).

PPS. Please feel free to round responsibly. I'm looking for a rough, but digestible answer here, not an exact one.

0

I'll do the calculation with all parameters fixed as:

$200 a month invested, 37 years, 4.94% annual dividend, and monthly compounding.

Then the total account value is 252480.64 and 4.94% of that value is 12472.54. Then the monthly dividend is 1039.38 .

Here is a link to the calculator:

https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator .

| improve this answer | |
  • Thanks, that was very helpful. I'm guessing that the 4.9% interest rate here represents the dividend reinvestment over time, no? – Michael Apr 11 at 2:12
  • I took the dividend as 2.8 and the stock price as 56.68 to make a percentage rate. Inflation can rise but so can the dividend and stock price such that an estimate of 37 years from now can be considered in today's dollar buying power. Actually, the 200 a month should be increased with rises in inflation. – S Spring Apr 11 at 19:18
0

No one has the math chops to answer this because there's a missing variable. What will be the share price on each of the future purchase dates?

For example, if a $200 purchase was made on 2/19 at $80, he'd buy only 2.5 shares.

If the next purchase was made a month later on 3/19 at $48, he'd buy 4.2 shares.

The gist of it is that the amount of dividend to be received will be dependent on the number of shares purchased. It will secondarily be affected by dividend reinvestment and the price on that date unless reinvestment is not done.

You could get an actual answer based on historical data but that would have no bearing on the answer going forward. Drop the historical data into a spreadsheet. Start when (O) went public in 1994. Then recalculate for rolling periods by advancing the starting date one month at a time. When you have gone forward to where you no longer achieve a dividend payout of$12k per year, you're done. You'll then have a data set over all time periods since 1994 depicting the results for your premise. To keep it simple, ignore reinvestment. If you want more precision (and a more complex spreadsheet), don't ignore it.

All of this assume that dividend growth will remain constant. In this current environment, there is commentary that many companies will be cutting their dividend this year. Will Realty Income be one of them?

| improve this answer | |
  • 1
    I think your last point is key - at this rate of contribution, for any reasonable level of stock growth, it will take decades to grow the balance to a point where it's getting $1k/month in dividends. I wouldn't implicitly trust current price/dividend trends to remain constant over the next 20, 30, or 40 years. – Nuclear Hoagie Apr 10 at 18:30
  • Like I said, I have a knowledge of the moving parts that make this kind of an absurdist question; that's why I specified, for arguments sake, to assume price and dividend growth remain constant. I mean, of course they won't. The whole idea here - for me - is to be able to show my friend how the effects of money over time can bring down his costs versus a one-time investment of 230,000$. – Michael Apr 11 at 1:45
  • There is no such thing as price growth remaining constant. If you you want to attempt something that might mimic that somewhat, run a linear regression on the entire set of data and use that as your growth figure. Even that's questionable but if you started in 1994, it would be somewhat in the ballpark. A one time investment of $230k would generate $12k a year right now, compounding faster and higher. It's an apples an oranges comparison to $200 a month. – Bob Baerker Apr 11 at 2:49

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.