Monday, November 15, 2021

How to Create a Dividend Income Ladder From Scratch.

 One of the commonest complaints I hear from people about dividend investing is "But I would only receive occasional income from dividends. What do I do between dividend payments to make money?"

Well of course, in the United States most dividends are paid quarterly. in other parts of the world you receive only semi-annual dividends every six months or so.

Dividend ladder, a ladder  on a plain white background, rising from bottom left to top right, wooden ladder image

One of the first investing tricks I learned back in the 1970's at the very beginning of my investing career was to create a dividend ladder.

With a dividend ladder you can create a sequence of dividend checks coming in, almost daily.   I personally receive on average more than seven dividend payments per day.

March, June, September and December still actually see me me receiving more dividends than any other months. But this is just a product of the way U.S. Corporations pay their dividends.  I still receive dividends most week days.

How I begin creating a Dividend Ladder:

First of all, the dividend ladder only works if you use dividend paying stocks and Interest paying Bond funds. You can include growth stocks if you wish, but they will not contribute to dividend income for some time, if ever.

I begin with a framework.  In the last few days of a month, many Mutual funds and ETF pay a dividend. While some companies, Coca Cola ( KO ), Aflac (AFL ) and Allstate Insurance (ALL ) like to pay on the first day of the month.  So one can mix in some monthly paying Mutual Funds and blue chip single company dividends here, choosing companies which pay on the first day of different months helps . So Allstate pays in June, Cocac cola pays in July, Verizon (VZ ) pays in August, then back to Allstate to repeat the cycle.

Week two of the month can be a little sparse, unless you have some Bond funds, Bond funds generally pay out around the seventh of the month.  

There is often a quiet period until about the fifteenth of the month when many monthly paying Real estate investment trusts (REITs ) pay out, One might also include Business development corporations here too BDC likn Main Street Capital ( MAIN ) pay out at this time.

The third week of the month or beginning of the last week sees the paying of dividends from many covered call investment companies.  They generally pay about one week adter the monthly options period closes, that is the third Friday of the month.

After one has created this frame of investments which will pay you a regular monthly income, one only needs to fill in the gaps with dividend paying stocks.

It is a simple method of generating almost daily income from periodic payments.

Build a Dividend Ladder with M1 Finance. Get a Bonus when you start investing.


 With M1 Finances automatic investment program you can set your investments and almost forget.  M1 Finance will reinvest the dividend income into your pre-selected stocks to automatically keep your portfolio balanced in the way you wish.

Your dividend ladder can grow and grow with little effort from you.

As your dividend ladder starts, you only see small increases in dividends at first.  But if you continue to add a little new money, your investment grows, increasing your dividends.  This effect is often call the "Dividend Snowball"  Before long your dividends can be in the tens of dollars per month.

For instance, I opened my account with M1 Finance on January 15, 2020.  I began with just $100, I added $10 per week. My first dividend came just three weeks after opening the account, I received 1 cent from the LQD Corporate bond fund. Afew days later other dividends began to come in.   Today in November 2021, I have earned over $102 in dividends. and my account has grown to over $4,600.  In the next year I expect to earn $12 per month, that is for doing nothing but, monitoring a portfolio occasionally and adding a dew dollars per week.

Amazing.  The power of investing in dividend paying stocks.

Thanks for reading.  I hope that you might try to create a dividend ladder from scratch.

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