How to Use the Dividend Income Planner

The Dividend Income Planner helps you design a diversified portfolio to generate your target monthly income. It shows how different asset categories contribute to your income and helps you balance yield with risk.

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What This Tool Does

The Income Planner:

• Calculates the portfolio size needed for your income goal
• Shows how different dividend categories contribute
• Helps you balance yield, growth potential, and stability
• Visualizes your diversification across asset types

Understanding the Asset Categories

The planner divides dividend investments into five categories:

1. Dividend Growth (1.5-2.5% yield)

What it is: Quality companies with lower yields but faster dividend growth.

Examples: Microsoft (MSFT), Visa (V), Home Depot (HD), AbbVie (ABBV), ETFs like VIG and DGRO

Pros:

• Fastest dividend growth (8-12%+ annually)
• Strong price appreciation potential
• Most resilient during downturns

Cons:

• Lowest current income
• Requires patience to see meaningful yield on cost

Best for: Long-term investors prioritizing growth over immediate income.

2. Core Income (2.5-4% yield)

What it is: Blue-chip dividend payers with balanced yield and growth.

Examples: Johnson & Johnson (JNJ), Procter & Gamble (PG), Coca-Cola (KO), PepsiCo (PEP), ETFs like VYM and SCHD

Pros:

• Reliable, predictable dividends
• Moderate growth (4-6% annually)
• Lower volatility than market

Cons:

• Slower growth than pure growth stocks
• Premium valuations for quality

Best for: Most investors seeking balanced income and growth.

3. High Yield (4-6% yield)

What it is: Established companies with higher payouts and slower growth.

Examples: AT&T (T), Verizon (VZ), Altria (MO), utilities, telecom stocks

Pros:

• Higher immediate income
• Often in defensive sectors

Cons:

• Slower or no dividend growth (0-3%)
• May not keep pace with inflation
• Higher risk of dividend cuts

Best for: Those needing income now and willing to accept less growth.

4. REITs (4-7% yield)

What it is: Real Estate Investment Trusts that must pay 90% of income as dividends.

Examples: Realty Income (O), VICI Properties, Digital Realty, ETFs like VNQ and SCHH

Pros:

• High, reliable income
• Real estate diversification
• Inflation hedge through rent increases

Cons:

• Taxed as ordinary income (not qualified dividends)
• Sensitive to interest rates
• Can be volatile

Best for: Income seekers willing to accept tax inefficiency (or using tax-advantaged accounts).

5. Fixed Income/BDCs (6-10% yield)

What it is: Business Development Companies, preferred stocks, bond funds.

Examples: Main Street Capital (MAIN), Ares Capital (ARCC), preferred stock ETFs

Pros:

• Highest yields
• Monthly income common

Cons:

• Little to no dividend growth
• Most volatile category
• Tax inefficient
• Higher risk of cuts

Best for: Aggressive income seekers with high risk tolerance.

Step-by-Step Guide

Step 1: Set Your Monthly Income Goal

How much passive income do you want each month? Consider:

• Current monthly expenses
• Future retirement spending
• Other income sources (Social Security, pension)

Ranges:

• $500-1,000: Supplemental income
• $1,000-3,000: Significant income contribution
• $3,000-5,000: Could cover basic retirement expenses
• $5,000+: Full financial independence

Step 2: Choose Your Risk Tolerance

The planner offers three presets that automatically adjust allocation:

Conservative:

• Heavy in Dividend Growth (35%) and Core Income (40%)
• Lower yield but more stable
• Best for: Newer investors, those far from retirement

Balanced:

• Mix across all categories
• Moderate yield and growth
• Best for: Most investors

Aggressive:

• Higher allocation to High Yield, REITs, and BDCs
• Higher income but more risk
• Best for: Those needing maximum current income

Step 3: Customize Your Allocation

Adjust the sliders for each category. The tool shows:

• The dollar amount in each category
• Expected income from each
• A warning if your allocation doesn't equal 100%

Tips for allocation:

• Keep at least 2-3 categories active for diversification
• Don't go all-in on highest yield (more risk)
• Consider your time horizon (more growth if younger)

Understanding the Results

Summary Bar

Four metrics at the top:

• Monthly Income Goal: Your target
• Portfolio Required: How much you need at your blended yield
• Projected Income: What your allocation actually generates
• Diversification: How many categories you're using (more = better)

Portfolio Visualization

• Bar chart: Shows your allocation visually
• Category breakdown: Each category shows the dollar amount and expected annual income

Income Summary

• Monthly/Annual Income: What you'll receive
• Blended Yield: The weighted average yield of your portfolio

Portfolio Characteristics

• Yield vs Stability Trade-off: Visual indicator of your risk/return position
• Dividend Growth Potential: How fast your income may grow
• Income Stability: How reliable your income is
• Tax Efficiency: Whether your portfolio is tax-efficient (REITs and BDCs are not)

Example Portfolios

Conservative Income Portfolio

Goal: $2,000/month in stable income

Total: $800,000 portfolio → $26,400/year → $2,200/month

Balanced Income Portfolio

Goal: $3,000/month with growth potential

Total: $1,000,000 portfolio → $38,625/year → $3,219/month

Aggressive Income Portfolio

Goal: $4,000/month maximum income

Total: $800,000 portfolio → $37,300/year → $3,108/month

(Higher yield means smaller portfolio needed, but more risk)

Portfolio Building Tips

1. Start with ETFs

If you're new to dividend investing, start with ETFs for instant diversification:

• VIG/DGRO: Dividend growth
• SCHD/VYM: Core income
• VNQ/SCHH: REITs

2. Hold Tax-Inefficient Investments in IRAs

REITs and BDCs generate ordinary income (higher taxes). Hold them in:

• Traditional IRA (tax-deferred)
• Roth IRA (tax-free)
• 401(k)

Keep qualified dividend stocks in taxable accounts for lower tax rates.

3. Don't Chase Yield

A 10% yield sounds great until the company cuts it in half. Balance income with quality.

4. Reinvest Until You Need Income

Use DRIP to compound your portfolio until you're ready to live off dividends.

5. Rebalance Annually

As prices change, your allocation drifts. Rebalance once a year to maintain your target mix.

Common Questions

How much do I need to generate $X per month?

Quick formula: Monthly goal × 12 ÷ portfolio yield = required amount

• $1,000/month at 4% yield = $300,000
• $2,000/month at 4% yield = $600,000
• $5,000/month at 4% yield = $1,500,000

Should I aim for higher yield or more growth?

Depends on your timeline:

• 10+ years to needing income: Favor growth
• Needing income soon: Balance yield and growth
• Need maximum income now: Higher yield (but accept more risk)

What if I can't invest the full portfolio amount?

Build gradually! Use the planner to set a target, then work toward it over time.

Next Steps

1. Calculate your FIRE number
2. Project income growth over time
3. Compare platforms to start investing
4. Browse Dividend Aristocrats