So what dividend investing for passive income? Investing in companies that pays dividend is the simplest form for investors to create passive income. Ever wondered if you can live off from dividends from companies that you’ve invested in? In this post I will cover how to start in dividend investing to build that passive income goal. But, first off let us cover the basics.

What is a dividend?

To better explain I’ll give an example. When you buy shares of a company and the company makes a profit, the company may either use those profit to reinvest back to the company to further grow it, say they bump up their budget on their R&D. Others can choose to give portions of the earning back to their investors, which is you.

Dividends are generally paid in proportion to the shares held by investors. Not all companies pay dividends to investors.

When Are Dividends Paid?

A company’s board of directors determines the dividend payment schedule and amount to pay. Some companies pay investors annually, twice a year or quarterly.

In order to receive dividend payments you need to be holding shares of a company before the ex-dividend date. This is the holding time period to qualify for the dividend payment by the company.

Anyone who purchases shares of a company prior to the ex-dividend date, and holds the shares throughout the ex-dividend date will receive the dividend as announced by the company.

What is A Dividend Yield?

Dividend yield is the percentage figure calculated by dividing the total annual dividend payments, by the current share price of the stock.

For example, if a company’s annual dividend is $1.50 and the current stock price is at $25, the dividend yield is 6% ($1.50 ÷ $25).

So, How do I start in dividend investing for passive income?

Now we know what dividend are and payment schedule. To start, you need a brokerage account. A brokerage account is an investment account that allows you to buy and sell stocks. There numerous online brokerage account where you can apply now.

How To Pick Companies for Dividend Investing for Passive INcome

Dividend yields vary by companies, 2% to 6% is considered a good dividend yield, but a number of factors can influence whether a higher or lower payout suggests a company stock is a good investment.

Investors unsure which stock to pick should stick with the dividend aristocrat. A company will be considered a dividend aristocrat if it raises its dividends consistently for at least the past 25 years. Check this list from Time for latest dividend aristocrat and consider adding them to your investment portfolio.

Best to do a dollar-cost averaging to build up your dividend stock investment portfolio. Dollar-cost averaging is a purchasing strategy in investing that involves periodically investing a set amount of money regardless of the market price of the stock.

Also, consider setting up dividend reinvestment plan (DRIP) if your brokerage account supports it. A DRIP is a program that allows investors to reinvest their dividends into additional shares or fractional shares of the underlying stock on the dividend payment date.

On this post we will go to the some of the concepts of different ways income can be classified. In general terms income is money you can make in exchange of providing work (labor/service/product), capital at work(investment) or by luck.

Total Income = work + investment + windfall gain.

Temporary Income

Income is classed as temporary if the income flow ceases the day you cease work.

• Salary and Wages
• Business Profits
• Director Fees

Permanent Income

Permanent income on the other hand, does not depend on your active involvement(most of the time). Income flow would continue to work for you for the rest of your life and can be passed onto your beneficiaries.

• Interest
• Rents
• Dividends
• Royalties

Windfail Gain

The other main source of income is by way of a benefactor or simply luck. This is more about good fortune and just for information.

• Inheritance
• Marriage
• Lotteries

Attaining Financial Success

Having financial success involves progressively moving from 100% income coming from temporary income to be coming from permanent income.

The process to realising this is as basic as it gets. Each time you earn some money from work(temporary income), save and invest as much of it as you can to turn it into investments(permanent income).

How Does That Look Like?

Given the choice between $1000 now and $100 each year for the rest of your life which would you take?

This is the choice you would have to make everytime, spend it or invest it.

Let’s say your earned $1000/month and you started to invest that money where it can earn a 10% returns yearly that is $100/year. $100 divided by 12 months = $8.33.

You now have permanent income of $8.33/month

Now that is amazing. Progressively if you can increase your investment, your permanent income increase.

Amount Invested	Permanent Income/month
$1000	$8.333
$2000	$16.333
$5000	$41.666

And we haven’t factored in the power of compounding interest yet. I’ll cover that in another post. Basically the earlier you start and the longer your investment goes you would see exponential returns.

The goal is to invest savings so that permanent income flow continues to increase to the point where you can break the hand to mouth cycle that most of us are caught in. The choice to spend or invest is yours.

Most of us have a feeling that financial success is not something that can be attained, we probably feel that we would work for the rest of our life, and others just accepted that others will have extreme wealth and they won’t. The mentality needs to change, everyone started small, the more dedicated and educated you are in increasing your investments the easier it will be to become financially secure.