Today (11/16/2016), minimum wage in the United States is $7.25 per hour. Many states also have their own minimum wage laws and luckily for us, the higher of the two apply. Especially here in DC where the minimum wage is $10.50 per hour and the cost of living is ridiculously higher.
Let’s take a look at dividends again and see how much we’d need to save up in order to effectively earn ourselves the national minimum wage through passive dividend payments. The S&P Dividend ETF, SDY, yields an average annual dividend of 2.30% and is currently trading for about $85.
Now let’s do math:
- $7.25 per hour
- The average work week is 34.4 hours long.
- This equates to $249.40 per week in gross income.
- Multiply this by 52 business weeks per year and you get an annual average minimum wage of $12,968.80 (before taxes)
How much in dividends will you need to cover this?
- SDY: Currently trading for $85
- Pays an average annual 2.30% in dividends per year
- This means you’ll need to invest $563,860 in order to earn the annual minimum wage of $12,968.80
- This equates to buying around 6,634 shares of SDY
Of course you can always look into investing in other ETFs or stocks that could earn a higher dividend yield. In that case your investment capital will be lower. If you’re aggressive and invest into a company with a higher dividend yield, such as Verizon or AT&T (~4.5%), then you’d need to invest only about half as much money: $288,195.
This will earn you at the very least, minimum wage, which supposedly is what you should be able to survive on (yeah right!). But at least it gives you a little piece of mind and a great milestone down the path of financial freedom.