Passive income is something that we all want to master especially if we want to take control of our financial destiny. Financial services are full of a range of products such as online fast cash loans as a way to encourage people to spend. However, you can also use passive income as a way to spend in a way that suits you. Here is why dividends are the best part of passive income that many of us do not know how to master but it is relatively easy to do so.
Top Tips on Understanding Dividends as Passive Income:
• Buy shares in companies that give dividends: Companies that trade on international stock exchanges in London, New York or Hong Kong can release dividends to their shareholders. A dividend is essentially a company’s way of sharing the wealth and repaying you for believing in what they do. Since you bought shares, you could receive a dividend which is a cut of the profits that the company has generated.
• Dividends should come each quarter or monthly if possible: If you are a beginning investor, look for companies that generate a dividend every quarter. This means that you should be getting a cash injection every 4 months on the assumption that the company is doing well. If you are an experienced investor, finding monthly dividends should be your number one priority because of how important they are. That is truly the definition of passive income because it comes every month.
• Look for dividend income in foreign currency: The rise of emerging markets has made foreign currency even more important as international trade becomes an important indicator of a country’s economic success. See if you can be a shareholder in companies that trade internationally and do business in foreign currency. Key currencies to look out for include the Australian dollar, the Chinese RMB and the US dollar.
Following a few of these top tips will be the first step into creating a passive income stream rich with dividend notices from a portfolio of companies that you own shares in.
Readers – Who else is using dividends to create passive income streams? What are your monthly or yearly income goals from them? I’m shooting for $100 per month!
Related Posts:
1) How to Read and Evaluate Basic Stock Metrics
2) Book Review: “The Little Book of Big Dividends” by Charles B. Carlson
3) Protecting Yourself with Dividend Stocks
4) Using the Dogs of the Dow to Buy the Best Dividend Paying Stocks
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We still haven’t really gotten too into this, but plan on soon. We just had a talk about this the other day!
There’s always time to start. Check out my post on the Dogs of the Dow. This is probably the biggest no-brainer of a strategy when it comes to dividends.
I haven’t really gotten into this yet either. Hopefully it happens sooner rather than later though! I think I might start investing parts of my blog income into P2P lending. That way I get it started at least!
Jason recently posted..Recipe: Portabella Mushroom Sandwich
P2P would make a fantastic investment experiment (and blog post series)! And who knows – you might actually pull off the 8 to 12% that other investors brag about if you select the right people to loan to.
I personally wonder if dividend stocks are going to be a bubble. So many people are telling the world how amazing they are and I am wondering if thief prices will drop if/when the economy seriously picks up speed.
Lance@MoneyLife&More recently posted..What the One Percent Buy at Disney World
Like anything that people jump on, I too had wondered if they were heading towards bubble-like territory (people have also said the same thing about bonds). In the book I read “Dividends Still Don’t Lie” by Kelley Wright, he demonstrates using a lot of evidence that blue chip dividends have a great history of price stability. For example, say the economy does pick up speed and the prices fall. That just means the dividend yield will look more attractive. So it will only be a matter of time before people start buying it up again.
I’m eventually hoping for $40,000 a year in dividend income. (I’m halfway there!) I’ll need more than that to retire on, but I expect to have other smaller income streams. I want dividends to be the anchor because they are the most passive.
S. B. recently posted..Remembering September 11th with U2
Wow, halfway to $40,000 in dividend income alone is pretty amazing. Good for you.
MoneyAfterGrad recently posted..Why I buy extended warranties on electronics
WOW! By my calculations at a 4% yield, that would be a nest egg of $1M! You’ve got to write a guest post for me that tells how you gotten to this point!
I’ve got another post coming out next week with my own income report. I fully agree that they have been about as passive as anything gets!
I’m just starting to get involved in dividend investing, but the concept does really appeal to me. So it’s likely something I am going to concentrate on. I don’t really have any set goals yet though.
Modest Money recently posted..Guilt Induced Frugality
You and I can jump onto the Dogs of the Dow next year! That’s what I plan to do after I get my profit sharing.
We’re still in the wealth accumulation phase and I have been convinced that stocks that reinvest rather than give dividends are the way to go. Still, I have some stocks and indexes that spit dividends, and the quarterly dividend always makes me smile. I drip the indexes.
Nicoleandmaggie recently posted..my favorite sling
p.s. My single stock dropped $2600 in dividends last year. Not sure how much my indexes did because I drip them.
Nicoleandmaggie recently posted..my favorite sling
I have not yet set myself up with a DRIP plan. I understand the concept and see the advantages (i.e. compound interest effects). But I still have yet to do this.
I’m still quite a newbie to the stock market. I bought stocks from Starbucks more because I thought it seemed like a stock that wasn’t so risky. I appreciate the company’s values and well, I like their coffee. The world needs coffee, right? Well, I had no idea they gave out dividends until the statement came in. Haha. A few of my other stocks give out quarterly dividends. I don’t have a dividend goal as of yet, but I’m now planning on buying only stocks that give out dividends.
MakintheBacon$ recently posted..Unilingual and Not So Proud of It
Not a bad pick! The stock has basically doubled over the last 3 years! If you want an easy way to pick high quality great yielding stocks, read my Dogs of the Dow post. It’s a pretty popular strategy that has a lot of merit.
Wow you just opened up another topic I know nothing about. Thanks so much for sharing this. I’d love to read more posts on the topic for beginners etc!
Best,
Cat @ Budget Blonde
Cat Alford @ Budget Blonde recently posted..A Tale of Two Overdue Library Books
You’re welcome Cat! I’ve got another post on this coming up next week where I’ll have a number of links to my other posts on the subject of dividends. In general, you just need to do a little bit of research on some high-quality blue chip stocks and then make the purchase! I did that for the first time this year, so I’m not much further behind than yourself!
The best dividends are in the sin stocks of MO, and PM. MO is the best performing stock since the great depression with dividend reinvested. PM is the international portion but there is currency risk. To lower your risk invest in a fund that invests in dividend growth in many companies. Vanguard Dividend appreciation fund (vdaix) is a good one, or the same ETF (VIG)
Thanks for the recommendations! Where there is sin in our culture, there is someone finding a way to make money of it!
I am generating around $1200 per month from my JNJ, GE and now AAPL investments. I keep reinvesting dividend income to let it grow faster.
Do you know that Apple pays highest dividend than any publicly traded company in the world?
Shilpan recently posted..The Salary You Want for Your Happiness
Great for you Shilpan! That is incredible! I will have my first dividend income report next week which also includes JNJ. But my numbers are much, much smaller since I just got into it this year.
You’re really making me regret selling that AAPL stock. That may be true that they pay the highest dividend, but their yield is only 1.56%. JNJ, CVX, and others are paying around 3% yield and are still very good selections. I was very happy to hear that AAPL decided to issue a dividend, but I was not happy that they did it the week after I sold the stock!
You can always buy it back at the right time, my friend!
Shilpan recently posted..The Salary You Want for Your Happiness
As a long time value investor I have always avoided stocks in the spotlight like Mcdonald’s Or Apple computer. Although they may be very good companies their not great value stocks. The problem that I see with stocks like apple computer and Mcdonalds is that the expectations for these companies are so very high so even a modest downward revision of future earnings and sales expectations can cause a huge drop in the price of the shares. Most everyone buying apple computer and Mcdonalds are basing their decision on the future expectations of earnings and sales. But can anyone really peer into the future with any degree of certainty.
AAPL and MCD may be in the spotlight and be sensitive to market shifts, but you’ve got to admit that they are two solid companies! Both have a great track record, products that people want, and great long-term prospects.
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