Ever heard of making money while you sleep? Yes it exists and comes in the form of passive income. Now you would be wondering what is passive income and what is active income. A job where you work all day and get a pay check at the end of the day or month is a form of active income .
Passive income is income resulting from cash flow received on a regular basis, requiring minimal to no effort by the recipient to maintain it. Earnings derived from a rental property, limited partnership, Dividend stocks or other enterprise in which a person is not actively involved. As with active income, passive income is usually taxable. However, it is often treated differently by the Internal Revenue Service (IRS).
WHAT ARE DIVIDEND STOCKS?
A dividend is a payment made by a corporation to its shareholders, usually as a distribution of profits. When a corporation earns a profit or surplus, the corporation is able to re-invest the profit in the business (called retained earnings) and pay a proportion of the profit as a dividend to shareholders. An example is Realty Income Corporation (NYSE: O), this is a real estate company which pays monthly dividends. They pay 22.65 cents per month or 2 US dollars and 71 cents per month for one share. So if an investor has 10,000 shares of realty income, he will earn $27,100 per year without doing any work. That’s passive income. An upside is that if the company shows growth and the price of the share goes up while you hold a stock, not only are you getting the dividends, you will get higher dividend returns. Also since the price per share will increase, you will make some profit per share. Now that’s just icing on the cake with the cherry on top.
MY ADVICE : I personally recommend reinvesting the money you get from dividend stocks to buy more dividend stocks. In the long term, the dividends will pile up and undergo the magic of compound interest which will make your money multiply.
God of Finance and Investing 