How Investing $100 per Month Can Build a Portfolio That Pays Over $1,200 in Annual Dividend Income

Investing is a long-term endeavor that can pay big dividends. A little bit can go a long way. For example, investing just $100 a month can grow into a portfolio generating over $1,200 in dividend income in about 25 years. At that point, your dividend income would more than cover your monthly investment level.

Here's a look at the math and three dividend stocks that could deliver this level of annual dividend income.

Image source: Getty Images.

The math to $1,200 in annual dividend income

I ran some calculations on what a $100-per-month investment could generate in dividend income over time. I used an average initial dividend yield of 4% and assumed 5% annual dividend growth. Here's a look at the annual dividend income this investment level would generate over the years:

Data source: Author's calculations.

I wanted to point out that the effective annual yield is lower than the investment's starting yield. That's due to the assumption that you wouldn't receive a full year's worth of income on the entire $1,200 annual investment since you'd be investing $100 per month. I also didn't factor in any dividend reinvestment. Using these assumptions, you'd be generating enough in dividend income to cover your monthly investment by the end of year 25.

Next, we'll look at a trio of dividend stocks with an average dividend yield of more than 4% and a history of delivering mid-single-digit annual dividend growth.

Top-notch dividend stocks to hold long term

Brookfield Renewable (NYSE: BEPC)(NYSE: BEP) currently offers a more than 4% dividend yield. The global renewable energy company has grown its payout by at least 5% each year since 2011. That growth should continue. The company expects to increase its dividend by 5% to 9% annually over the long term. It's in a strong position to achieve that goal over the next five years as it's targeting more than 10% annual earnings growth. Brookfield Renewable's growth drivers include rising power prices, new development projects, and acquisitions. With power demand expected to surge in the coming decades, Brookfield Renewable looks like a safe bet to continue increasing its dividend.

Realty Income (NYSE: O) offers an even higher current dividend yield of more than 5%. The real estate investment trust (REIT) pays its dividend monthly. It has raised its payment 135 times since its public market listing in 1994, growing it at a compound annual rate of more than 4%. The REIT expects to continue growing its dividend. It sees a $14 trillion opportunity to invest in commercial real estate across the U.S. and Europe. Realty Income has steadily expanded its total addressable market by adding new property types (e.g., gaming and data centers) and entering new markets (e.g., Mexico and additional European nations). The financially strong REIT has the capacity to invest billions of dollars into new income-generating properties each year to support its growing dividend.

PepsiCo's (NASDAQ: PEP) dividend yield is currently over 4%. The global beverage and snacking giant has increased its dividend for 54 consecutive years. That qualifies it as a Dividend King, a company with 50 or more years of annual dividend increases. PepsiCo has grown its dividend at a 7% compound annual rate since 2010. The company's long-term targets are to deliver mid-single-digit annual organic revenue growth and high-single-digit earnings-per-share growth. That should support continued dividend growth for PepsiCo shareholders.

Steadily build a meaningful dividend income stream

Investing $100 a month into dividend stocks can pay off over many years. Companies like Brookfield Renewable, Realty Income, and PepsiCo have long records of paying high-yielding dividends that steadily grow. That makes them ideal dividend stocks to invest a little money into each month and build a portfolio that can eventually produce a meaningful annual income stream.

Matt DiLallo has positions in Brookfield Renewable, Brookfield Renewable Partners, PepsiCo, and Realty Income. The Motley Fool has positions in and recommends Realty Income. The Motley Fool recommends Brookfield Renewable and Brookfield Renewable Partners. The Motley Fool has a disclosure policy.