Dividend Passive Income (All You Need To Know)

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Dividend Passive Income

Dividend passive income refers to a type of income that is passively generated by holding company stocks that issue dividends to their shareholders.

In other words, “dividend passive income” refers to “dividend income” generated passively.

What’s truly amazing about passive dividend income is that once you purchase the company stocks offering dividends to the stockholders, with the mere passing of time, you can earn an income.

Since the investor of a dividend stock does not have to actively participate in generating income, we say that the income is earned passively (without the participation or involvement of the stockholder).

There are many investors that invest in dividend stocks in order to earn a steady stream of dividend income over time and potentially earn capital gains on the appreciation of the stock value over time.

When you earn dividends, you can either cash in the money (if you are looking to use it for something else) or you can choose to reinvest the dividends by buying more dividend stocks.

Reinvesting dividend income in dividend-paying stocks will result in a compounding effect allowing you to increase your wealth over time.

Dividend Stocks

To earn dividend income passively, you’ll need to invest in dividend stocks.

Dividend stocks are shares of corporations and companies (generally traded publicly in the stock market) who issue dividends to their shareholders.

Dividend income is one of the easiest and simple ways investors can generate passive income using their capital investment.

For example, imagine that a company stocks issues $1.00 of dividends to its stockholders every quarter.

This means that a person who purchases one share of stock of this company can expect to receive $1.00 every three months ($4.00 in a year).

If the investor had to pay $80 to purchase one stock, this means that the dividend yield amounts to 5%.

In other words, the investor can expect to receive a 5% profit (or yield) on its capital investment.

Dividend Income

A dividend income is an income received by a stockholder holding shares in a dividend-paying stock.

A company listed in the stock market may offer dividends to its stockholders.

In other words, a company generates profits from its business operations and then distributes some of that income to its shareholders keeping them happy and well-invested.

The money the company distributes to its stockholders comes from the company’s retained earnings.

Some companies pay dividends regularly and have been doing for years, they are called the dividend aristocrats.

However, companies do not have any obligations to pay dividends to their stockholders unless the specific stock entitles the stockholder to dividends (such as preferred shares).

When you purchase shares in a company that pays you dividends, you are effectively earning a dividend income and you will have to report that on your personal income tax.

Generating Passive Dividend Income

To generate passive dividend income, you’ll need to invest in stocks that pay dividends.

The first step is to do your research and identify possible stocks that offer dividends.

Then, you should consider the company’s track record and see how long they have been paying dividends (the longer their dividend paying history, the more you can expect to receive dividends going forward).

Next, you should evaluate the company’s business and assess if the company is in a profitable industry and has the potential to grow over time or maintain its business operations.

Finally, it’s a good idea to compare the company’s dividend yield representing the expected earnings on your investment.

The higher the company dividend yield, the more you can expect to earn a passive income by holding stocks in that company.

Passive Income Dividends Takeaways 

So, what is Dividend Passive Income?

Can you earn passive income by holding dividend stocks?

Let’s look at a summary of our findings.

Are Dividends Passive Income

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