There are very few sure-fire ways to earn passive income today. Many of those that do exist require supplemental investment or a minimal time commitment. When all of these factors are weighed in to your passive income strategy, suddenly the income stream isn’t quite passive. One example is that of a rental property. Most landlords will tell you that the appeal of monthly rent payments is not quite all that it seems. The process of hiring a maintenance person, occasionally dealing with non-paying tenants, and costly wear-and-tear of a property can cut into your profits and waste your precious time.
However, one of the few pure passive income opportunities that still exist today is an investment play known as the dividend growth strategy. Like all investing strategies, this model requires a great deal of discipline, a shrewd eye, impeccable research, and adherence to the strategies spelled out here. It is not the easiest to follow through with, but it has some definite advantages over traditional investment models.
What is the dividend growth model?
Simply put, it is a total commitment to utilizing dividend-paying securities to bolster your portfolio’s short-term yield. It is not for everyone. If one jumps into a dividend growth plan without doing the necessary research the results could potentially be disastrous.So what are some things to consider when creating your passive income strategy?
First, consider what companies have issued a consistent dividend, historically. Countless companies utilize a dividend to draw in new investors. However, in times of turmoil many seemingly untouchable companies pull the rug out from under investors, by slashing the dividend or removing it altogether. This can come as a shock to many investors, especially those who depend on that dividend income to live off of.
So, why is the dividend growth strategy attractive?
Upon doing your homework you’ll find that there are a small handful of companies, and general securities that have not only maintained a solid dividend for a long period of time, but they have actually increased this dividend gradually. The usual increase occurs yearly and happens without fanfare.
Dividend income, up to a certain amount, is taxed at just 15%, as opposed to 30-35% give or take, for your ordinary income. Dividends are not capital gains, so they are treated like any other form of income when it comes to taxation.
Some of the basics to remember when choosing the right dividend-paying stock are how long the company has been issuing their dividend, and more. The longer the company has consistently paid a dividend, the greater the likelihood that it will continue to pay it. Next, consider what the dividend amount is. Does it look like the amount has grown steadily over time? Chances are you won’t see any big changes. (This is a good thing). Be wary of any company that boosts it’s dividend without prior notice.
All the dividend growth strategy entails is picking a stock or series of stocks that return a steady stream of income. The underlying security or securities should have positive outlooks, as you want to protect your principle investment.
Next, reinvest any and all dividends back into the stock. This constant reinvestment gives you a nice average of the highs and lows. In essence, you are will be not be affected by the 52 week highs and lows as much. Also, if you decide to sell any shares, reinvest capital gains into a new model. The will help your securities and portfolios grow at a pretty good rate.
Set a time and target for this incredible strategy. For example, “If this portfolio reaches $25,000 I will pay for X”. Or, “until 8 year have passed, I won’t pull any money out of the strategy”. This will yield great results over time, because you will not be affected by short, but violent swings.