Earn $300 in Quarterly Retirement Dividends in 3 Easy Steps | Personal finance

Here are three steps to earning around $300 per quarter, or $100 per month, in dividend income.

A dividend yield is the percentage of the stock price that the company pays out in dividends. The average dividend yield on the S&P 500 is around 1.7% right now. Generally, a yield higher than this is considered good enough. To determine if the dividend is sustainable, the payout ratio – the percentage of earnings used to pay the dividend – should ideally be less than 50% in most cases.

Often, the best dividend-paying stocks are those of large, well-established, blue-chip companies that are among the leaders in their industry. Many of these companies have consistent earnings and are committed to maintaining or increasing their dividends. A good place to look for these stocks is on the Dividend Aristocrats list, which are companies that have increased their annual dividend payouts for at least 25 consecutive years. It’s not the only source, but certainly a good starting point.

So, with these measures in mind, the next step is to develop a portfolio of stocks that are poised to generate consistent, high-yield passive income in retirement. For the purposes of this hypothesis, let’s pull from the list of dividend aristocrats and identify a few solid dividend stocks.

One is asset manager T. Rowe Prize Group (NASDAQ: TROW), which has a yield of 3.99% and a quarterly dividend payout of $1.20, with a payout ratio of 36%. It has increased its dividend for 36 consecutive years. Another is a pharmaceutical company AbbVie (NYSE: ABBV), which has a yield of 3.75% and a quarterly dividend of $1.41, with a payout ratio of 42%. AbbVie has increased its dividend for 50 consecutive years.

Both of these stocks have above-average yields, manageable payout ratios, and a long history of supporting their dividends, while being established leaders in their industries. It’s also worth noting that AbbVie is up 12% year-to-date (YTD) and has posted an average annual return of 16% over the past 10 years. T. Rowe Price is down 40% year-to-date, but all asset managers are struggling in this bear market. However, T. Rowe Price has earned an average annual return of 7% over the past 10 years and has virtually no debt, making it a reliable dividend payer.

If your idea is to generate passive income in retirement, it is important to develop a strategy to achieve this. How much would you need to invest in these stocks to earn a decent income? Let’s say you invested $15,000 in these two stocks. T. Rowe Price is trading at around $117 per share, so you can buy around 130 shares for just over $15,000. AbbVie trades for around $153 per share, so you can pick up 98 shares for just under $15,000.

For T. Rowe Price, 130 shares at $1.20 per share would generate around $156 per quarter, while for AbbVie, 98 shares at $1.41 per share would generate around $138 per quarter. That’s about $294 per term and $98 per month.

Keep in mind that these stocks will also generate capital appreciation, not just dividend income, so the investment will grow over time. T. Rowe Price has posted a 7% annualized return over the past 10 years, while AbbVie has posted an average annual return of 16%. So you not only get passive income, but also solid returns that you can tap into when you need it.

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Dave Kovaleski has no position in the stocks mentioned. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.