"If you have $500,000 in dividend stocks, that's only $20,000 a year. Granted, if you're retired, you may have other income at your disposal on top of that, like benefits from Social Security or a pension. But to live off of dividends in a comfortable manner, you may need a lot more money invested. A $2 million portfolio generating a 4% dividend yield, for example, gives you $80,000 a year. That income gives you a lot more flexibility."
"A stock market crash can be a retiree's worst nightmare - but it doesn't have to be. If your dividend strategy is solid, you can potentially get through a market crash without really feeling the pain. For one thing, dividends often serve as a hedge against market slumps. Your portfolio might lose value during a crash. But if you're also receiving dividend income, it can offset other losses."
Living off dividends requires a large portfolio because typical yields produce modest income relative to expenses. A 4% yield on $500,000 produces about $20,000 annually, while the same yield on $2 million yields roughly $80,000. Market declines can threaten retirement plans that rely on capital value, but dividend income can offset losses and provide ongoing cash flow. Selecting companies with a strong history of paying and increasing dividends increases the likelihood of continued payouts during downturns. Stable and growing dividend payouts reduce sensitivity to share-price volatility. Short-lived market slumps may pass without disrupting dividend receipts.
Read at 24/7 Wall St.
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