How To Earn $500 A Month From Discover Financial Stock Amid Regulatory Scrutiny

Shares of Discover Financial Services DFS are providing those buy-the-dip traders with an opportunity on Thursday, but it doesn't come without risk.

What Happened: Shares of Discover sold off more than 15% Thursday, primarily due to its ongoing discussions with regulators regarding credit card misclassifications.

The company said it "misclassified" certain credit-card accounts beginning in 2007, according to a Bloomberg report, which placed accounts into Discover's highest pricing tier, meaning that merchants were being overcharged for accepting Discover as a means of payment.

The lender said it set aside $365 million to compensate the merchants affected by the issue, according to the report.

Read more: Why Discover Stock Is Tumbling Thursday

Despite the regulatory storm and share sell off, Discover offers a high dividend payout, making it a candidate for investors seeking consistent dividend income. So how can an investor earn $500 per month from Discover’s stock dividends?

Discover has a dividend yield of 2.30%, so if you're targeting $500 in monthly dividend income, here’s how the math works out.

The $500 monthly yield equates to $6,000 annually. Dividing the $6,000 figure by Discover's 2.30% dividend yield results in the following calculation: $6,000 / 0.023 = $260,869.57.

So, to earn $500 per month from Discover dividends, you would need to invest about $260,869.57, or 2,546 shares.

If you’re aiming for a more modest monthly dividend income, say $100, you would need to invest about $52,173.91 or around 509 shares.

Note that dividend yield can change on a rolling basis, as the dividend payment and the stock price both fluctuate over time.

The dividend yield is calculated by dividing the annual dividend payment by the stock price. As the stock price changes, the dividend yield will also change.

For example, if a stock pays an annual dividend of $2 and its current price is $50, its dividend yield would be 4%. However, if the stock price increases to $60, the dividend yield would decrease to 3.33% ($2/$60).

Conversely, if the stock price decreases to $40, the dividend yield would increase to 5% ($2/$40).

Further, the dividend payment itself can also change over time, which can also impact the dividend yield. If a company increases its dividend payment, the dividend yield will increase even if the stock price remains the same. Similarly, if a company decreases its dividend payment, the dividend yield will decrease.

DFS Price action: Shares of Discover Financial are trading 16.05% lower to $102.31, according to Benzinga Pro.

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