Dividends as Passive Income

Ever since I’ve read “Rich Dad, Poor Dad” by Robert Kiyosaki, I’ve always wanted to generate passive income. Kiyosaki said the best way to generate passive income was from purchasing real estate property and renting it out. Although I do agree, real estate requires quite a bit of capital to jump into. For me, the easiest way to get passive income is through the stock market, particularly, dividends.

There are many different investment products in the stock market such as stocks, exchange traded funds, mutual funds, etc. The usual way to make money in the stock market is to purchase shares of an investment product, wait until the value of those shares grow, and then sell those shares. Another way to profit from the market is to invest in investment products that pay dividends; payments to shareholders for holding a stock.

Dividends can become quite lucrative over time as the value of the investment product and dividend payout increases. For example, as of today, Bank of America (BAC) closed at $31.00 a share. BAC has an annual dividend of $0.60 per share which equates to a yield of $0.60 / $31.00 = 1.94%. However, if you bought BAC 5 years ago when it was $14.44 a share, not only would your invest have grown by (31 – 14.44) / 14.44 = 114.78%, but your yield on cost would be $0.60 / $14.44 = 4.16%. This could be even more if each dividend was reinvested to purchase additional shares.

Dividend growth investing is something really interesting to me and something I’m very eager to start pursuing. I’ll provide more updates down the line on my progress as I make them.

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