There are just so many ways to create streams of passive income, but my favorite way of passive income is still the good ‘ol dividend stock passive income.
Dividend stocks are public-listed company stocks that make regular distributions to their shareholders, usually in the form of cash payments.
How dividend-paying stocks work
- their share price is X dollars
- they pay a dividend per share you own
That’s it.
Example: Company ABC whose stocks pay out $0.25 per share, if you own 500 of their shares, you get paid $125. Usually dividends are paid twice a year (bi-annual) or four times a year (quarterly).
Beautifully simple passive income strategy
- buy and accumulate dividend stocks
- reinvest at least 50% of dividends
- keep buying and accumulating dividend stocks
- UNTIL your dividends per year are more than your living expenses
#1 problem of dividend stock investing
You need to have a big chunk of it to work (because the returns are 3-7%+ per year); so depends on how much you spend, you may need more. Say for example, if you spend $4000 a month, then if the returns of the dividend stock is 3% per year, the amount you need invested will be
($4000 x 12) / 3% = $1,600,000
No one has $1.6M lying around eh. It’d be nice, but most regular folks wont have that.
But if you only need $2000/month, that’d mean you “only” need $800,000, which is a lot more easy compared to $1.6M. Maybe you work part time to supplement the $2000/month, or you just spend much lesser.
4 ways to play the game if we dont have that big chunk of cash
Time.
Compounding interest works most magically with time, so the longer time you have, the more it can work its magic.
Example: Sally invests $1000/month for 30 years versus Adam who invests $2000/month for 15 years, will they yield the same amount? Assuming dividend yields are 5% and all dividends are reinvested:
- After 30 years x $1000/month x 5% per year reinvested, Sally will have: $837,129.48
- After 15 years x $2000/month x 5% per year reinvested, Adam will have: $543,779.80
Interesting right? It’s all compound interest magic…that runs on time. So invest as early as you can.
Earn more
You can invest more by earning more, and one of the low hanging fruits are to negotiate for a higher salary. If you’re underpaid, it’s easier. Or look for what your competitors are paying in the industry, and switch.
If not, the other options are starting a side hustle:
- quick money can be done by app-powered hustles such as Uber, Lyft, DoorDash and similar offerings
- starting a blogging business is highly recommended, but man, it does take time (at least 12-24 months) and consistent action for it to yield good returns.
Save more / spend less
Saving more is doable when you have a lot of unnecessary spending already, such as if you’re already paying $3000 for monthly car installment, and then yes, you can either refinance or sell the car for a cheaper second hand options or take public transport.
This approach unfortunately do not work with individuals who have just enough.
Another method, is to look for higher yield dividend stocks
Instead of 3% return per year, can I get 6% per year? Or 10%?
If Sally invests:
- After 30 years x $1000/month x 7% per year reinvested, Sally will have: $1,212,876.50
- After 30 years x $1000/month x 10% per year reinvested, Sally will have: $2,171,321.10
Big difference.
Then what?
Keep building more and more of that $100/month passive dividend income streams.
Yes, you can enjoy some of the dividends along the way (at least 50% of dividends should be reinvested, to grow your nest amount as well as counter inflation.
Keep going UNTIL you reach your passive dividend income goal.
I’m the founder and writer here at NigelChua.com; as well as serial entrepreneur, therapy business entrepreneur, digital entrepreneur, investor and also happy husband, father and Christian.
Started and sold off a business for 7-figures; built another 7-figure one and growing it further, plus building/investing into other businesses and investments as well as advisory works.
Nowadays I share and teach entrepreneurship, financial independence, retiring early as well as building and living a life you love.