Build Passive Income with Dividend Stocks
Passive income is the Holy Grail of many who fall into the category of “financially savvy.” Indeed, the ability to maximize money – without having to do a great deal of additional active work – is a concept that most people can cherish. One of the ways that you can cultivate a passive income stream is to make use of dividend stocks.
Use Dividend Stocks to Create a Passive Income Stream
In order to create a passive income stream with high yield stocks, you will need to make sure that the money is coming directly to you, rather than being reinvested.
You can have the money sent to you in the form of a check, or directly deposited into a bank account. The idea is to continue building up your holdings so that your dividends increase, eventually providing you with regular income – without you having to do extra work. There are two main ways you can build up your dividend stock holdings:
1. Lump sum
If you have a fairly large chunk of capital, you can buy a large number of shares in a company that pays dividends to stockholders. This money sits there, possibly earning a return if the share prices increases, and you get the added bonus of receiving a regular dividend payment. There is nothing else you need to do.
2. Dollar cost averaging
Perhaps you don’t have enough capital to buy a large amount of shares. In this case, you can build your holdings gradually. Put in what you can each month, and you will gradually increase your shares in the dividend paying company. After a while, you will notice your dividend checks getting bigger. Eventually, you will have a large enough portfolio to support a steady income stream, and you can stop investing new money if you want.
Remember, though, that you need to keep a few things in mind. You will have to pay taxes on your dividend earnings, so make sure you understand how you will be taxed. Additionally, companies can change the dividends they pay out, so your income can be reduced if a company lowers its pay out. Remember, too, that you could lose money if the price of the stock you are holding tanks. Most companies that offer dividends, though, are fairly stable.
In the end, dividend stocks can be a good way to cultivate a passive income stream that can keep offering you returns for years. No need to do extra work.
It was years that I first heard, “You’re not rich until you’re making money in your sleep.”
Building a stream of residual income that continues whether you work or not is certainly a comfortable feeling. It draws millions of people to the dream of network marketing (unfortunately, big downlines are not the guaranteed effortless income for life they’re touted as, but that’s a different story). It also draws many people to try their luck on the Internet.
Even the people who are currently receiving big monthly checks from some type of business should be investing a substantial chunk of it into dividend paying stocks. The return on capital is not so generous as when you run the business yourself, but you’re almost guaranteed to receive ever-increasing dividend checks for the rest of your life.
The employees of all those corporations are getting up early every day and driving to work for YOU.
So I heartily agree that building a large portfolio of dividend paying stocks is the smartest financial investment anybody can make.
Camden Property Trust
I was actually listen to Jim Cramer’s new audiobook (Getting Back to Even) and he was also suggesting using dividend paying stocks. Are there any ETFs or mutual funds that pay high dividends? I think I would be more comfortable using those than individual stocks.