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This Dividend ETF Could Generate $1,000 per Month in Passive Income. Here's How.
Key Points
The Vanguard High Dividend Yield ETF targets stocks with above-average yields.
Its broad equity exposure without taking unnecessary risks makes it ideal for generating regular, predictable income.
Here's how much it will take to hit the $1,000 monthly dividend goal.
Want to generate $1,000 per month in passive dividend income? You don't need to pick individual stocks or chase risky investments offering double-digit yields. You just need a high quality portfolio of consistent dividend-paying stocks.
The Vanguard High Dividend Yield ETF (NYSEMKT: VYM) is one of the better options to get you there. Its 2.3% yield doesn't look terribly exciting on the surface, but its broadly diversified portfolio that doesn't take unnecessary risks to achieve that yield make it perfect for long-term income seekers.
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Here's how much you'd need to invest
The Vanguard High Dividend Yield ETF's portfolio construction strategy is simple. It starts with a universe of large dividend-paying stocks and selects the top half according to forecasted dividend yield. Qualifying components, nearly 600 in total, are then weighted by market cap.
At its current 2.3% yield, generating $1,000 monthly (or $12,000 annually) would require an investment of around $522,000. With the fund trading around $165 per share, that works out to roughly 3,160 shares needed to achieve that monthly dividend payment.
Assuming you don't already have a half million dollars sitting in your brokerage account, the easiest approach is to invest regularly and reinvest every dividend you receive. This slow-building helps you remain consistent, accumulate shares regardless of what the market is doing, and create wealth over time. It could take years to get there, but staying focused on the long-term goal is what matters most.
David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard High Dividend Yield ETF. The Motley Fool has a disclosure policy.