ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel
  • »
  • Personal Finance»
  • Income & Making Money

How to be rich and make passive income using dividend?

Updated on April 23, 2015
River Stream as Passive money
River Stream as Passive money | Source

Passive Income, explained by Robert Kiyosaki, the financial teacher

Passive Income or Passive Money

Passive money is much different from active income. For active income, we need to do physical work continuously and the month we stop doing it, we stop getting our paycheck. For passive money, however the story is different. You once work hard and create a stream of income that may continue to come even after you stop working month after month.

Most parents, have no idea about passive money. When children don't study, parents tell their kids, study hard or else you will not get job. If you don't get a job, you will not be able to earn money. So, since young, we are brainstormed with ideas that when we have a high salaried position, we are worthy and rich. Then, when difficulty comes, like recession, we lose our job and money. We go into depression and some of us commit suicide, robbery, theft and what not. Passive money is never taught by parents or by schools.

There is much better way than this. Robert Kiyosaki has taught financial education to millions of people and continues to teach. He teaches us to get out of rat race and be financially free. We need to focus on passive money instead of active income. He says that true wealth is how many days you can survive after you lose your job.


Financial Health Check

Is your passive income more than your expenses?

See results

Dividend as source of monthly passive income or passive money

Here, I am going to discuss one of the simplest ways to make consistent passive money with flexibility of time and money. One warning is that there are risks associated with any type of investment and users are suggested to do their extensive research before applying any of the below principles.

Dividends is a good source of cash flow or passive money which comes when we own stocks. It is similar to banks which give you interest rate when you deposit your money. However, the interest rate provided by banks is generally unable to overcome inflation. Dividends come when we own stocks or other products like REITs.

Buying stocks and becoming shareholder has dual advantage. Firstly, if it is a good blue chip company or organization, there is a probability of increasing in value over period of time. This capital gain can help you overcome inflation. Secondly, good companies tend to provide you monthly or quarterly dividends if you own stocks. This dividend income can be a good source of passive income or passive money. It is quite consistent and although the companies can change the dividend amount any time, they generally do it in positive side. When the companies pay good dividend, it attract more investors and it finally benefits the organizations.

Other than stocks, there are REITs, Real Estate Investment Trusts. REITs are becoming increasingly popular with the individual investors. They require less attention and give consistent passive money. Many countries have introduced REITs as an investment product. United States is leading in this area. REITs in United States tend to have high liquidity and less spread, which gives an additional advantage to the individual investor.

REITs are famous for providing an extremely high and attractive dividend yields that are paid quarterly or even monthly. They can offer an annual dividend of 10-20% which is quite high as compared to normal blue chip stocks. Some REITs have long history of paying dividends which can give us good idea how they performed during bad and good times. Few examples, are given here:

AGNC stock chart, provides a good dividend yield of 19.53% annually
AGNC stock chart, provides a good dividend yield of 19.53% annually | Source
NLY (Annaly Capital Management )stock chart, gives a dividend yield of 15% annually
NLY (Annaly Capital Management )stock chart, gives a dividend yield of 15% annually | Source

Hence, REITs like AGNC, NLY, etc. can be a good source of monthly passive money. NLY has a very long history of around 20 years which gives us a good glimpse how the company reacted to the recession or economy boom times.

However, some precaution is required. REITs work best in an economy where the interest rates are low. So, if the interest rates are trending upward, you need to do more research and fine tune your investment portfolio accordingly.


Disclosure: I buy and sell REITs, my favorites at the time of writing are AGNC and NLY.


To learn more about REITs investment:

Comments

    0 of 8192 characters used
    Post Comment

    • Ruchi Urvashi profile image
      Author

      Ruchi Urvashi 5 years ago from Singapore

      Returnfinder, Thanks for your feedback.

    • profile image

      returnFinder 5 years ago

      Nice article, however the charts displayed are price only, they do not show the impact of dividends on Total Returns. Most sites show 'price only' charts, maybe that's why people don't think of dividends. A recent new site seems to be showing such charts and returns... called CorrectCharts [one word].

    • profile image

      mlm 5 years ago

      m;;m

    • Ruchi Urvashi profile image
      Author

      Ruchi Urvashi 5 years ago from Singapore

      Thanks vims003. Your comments are valuable. Passive income is a good way to become financially free.

    • vims003 profile image

      Vimesh Ummer.U 5 years ago from india

      HI RUCHI ITS REALLY HELPFUL.I AM ALSO LOOKING FOR A PASSIVE MONEY.IT IS REALLY INFORMATIVE.VOTED UP.

    • Ruchi Urvashi profile image
      Author

      Ruchi Urvashi 5 years ago from Singapore

      Thanks Ruchira. I appreciate your feedback. Passive income can be built at any stage of life. It just requires our attention. For long time, our focus was only on getting the highest paid job, so we never got out of rat race. Thanks for loving and sharing. Best wishes.

    • Ruchira profile image

      Ruchira 5 years ago from United States

      Hi ruchi

      I have read the rich dad n poor dad book n like his philosophy but unfortunately have not been able to make good passive income. I like the idea of REIT but dunno if that will be a good idea these days with so many homes under water...gotta research more. Thanks for such a useful hub. Loved it and sharing :)

    • Ruchi Urvashi profile image
      Author

      Ruchi Urvashi 5 years ago from Singapore

      Great work..Passive money by dividend payment is a good investment strategy. We don't have to spend that much time and money works for us. All the best in your investments and I hope that you retire before 5 years.

    • profile image

      theking2020 5 years ago

      Financial freedom is worth every penny out there, I started building my portfolio over a year ago, know I sit here and happily enjoy dividend payments from companies listed in your article. I see myself retiring 5 years from now on dividends alone, hope I can share the story on here on Hubpages.

    • profile image

      theking2020 5 years ago

      Incredible article, I wrote a couple articles myself on stocks.

    • SD Dickens profile image

      SD Dickens 5 years ago

      Great Hub...this is exactly what I'm trying to do! It will take awhile to get to financial freedom but it'll be worth it!

    • Ruchi Urvashi profile image
      Author

      Ruchi Urvashi 5 years ago from Singapore

      Hi Youngbesttips, thanks for your feedback.

    • youngbesttips profile image

      youngbesttips 5 years ago from United Kingdom

      Its very nice

    • Ruchi Urvashi profile image
      Author

      Ruchi Urvashi 5 years ago from Singapore

      Hi Nomadicasian, I hope you can get some useful information about REITs and how to get passive money using them.

    • profile image

      nomadicasian 5 years ago

      Thanks for this useful hub.

    • Ruchi Urvashi profile image
      Author

      Ruchi Urvashi 5 years ago from Singapore

      Hi Carlon, thanks for your feedback.

    • Carlon Michelle profile image

      Carlon Michelle 5 years ago from USA

      Good information to know. Thanks for sharing. Smile!

    • Ruchi Urvashi profile image
      Author

      Ruchi Urvashi 5 years ago from Singapore

      Hi Jyoti, thanks for your feedback. As requested, I have added new information to provide readers a better idea about dividends from REITs. Thanks.

    • JYOTI KOTHARI profile image

      Jyoti Kothari 5 years ago from Jaipur

      Hi Ruchi,

      Nice hub. However, it is short. Please add more content to go up in SERPs. I have also written few hubs on investment. You can feel free to go through and comment. Thanks rated up and useful.

    • Ruchi Urvashi profile image
      Author

      Ruchi Urvashi 6 years ago from Singapore

      Please provide your comments and feedback. Thanks