Dividend Stocks Are An Excellent Way To Earn Passive Income

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Dividend Stocks Are An Excellent Way To Earn Passive Income
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Passive income is a great way to set yourself up for success, both in retirement and before. There are several options for passive income, although some are more passive than others. For example, real estate can be a passive investment. However, it also requires property management, so you would need to hire a property manager or handle everything on your own.

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One great option for passive income is dividend stocks, which require next to no extra work on your part. All you have to do is look for stocks that pay dividends and pay attention to the yields on your stock holdings.

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What Are Dividend Stocks?

Dividend stocks are those that pay a dividend, often quarterly but sometimes annually or biannually. Companies pay dividends to reward shareholders by distributing their profits to them. Firms aren't required to pay dividends, but many choose to do so to demonstrate their profitability and encourage more investors to invest. Companies pay dividends in cash or additional shares of stock.

The individual dividends aren't much, but you could end up with a nice steady stream of income when you add up the dividends from a portfolio of stocks. A portfolio of dividend stocks also receives nice boosts every year by including so-called "Dividend Aristocrats," which are companies that have increased their dividends every year for many years.

“Investors looking to generate passive income without touching the stock market have plenty of options to diversify their portfolio while still earning potentially attractive yields ” said Wittney Rachlin, Chief Marketing Officer of Yieldstreet.

The dividend yield is a percentage that shows how much companies pay out in dividends every year relative to their stock price. A yield of 3% to 6% is generally considered a good target for dividend investors. If it's lower than that, the stock might not make a good investment for those looking for dividends, and if it's higher than that, it could suggest that the company is paying dividends at the expense of its future growth.

How To Enjoy Passive Income From Dividend Stocks

Collecting passive income from investing in dividend stocks is simple. It will take some time to set things up and choose your stocks, but you could eventually live off dividends if you play your cards right. In a post for Medium, Blake noted that you would need a $3.33 million portfolio with an average dividend yield of 3% to earn $100,000 in annual income.

Before you start investing, you'll need to do some research on which companies pay dividends and figure out their yields. From there, you can begin to build a portfolio of stocks with attractive dividend yields. You should review the portfolio regularly to weed out any companies that reduce or stop their dividends, which frequently happened during the COVID-19 pandemic.

Here Are Some Of The Best Dividend Stocks For Passive Income

If you're looking for a good place to start, it's best to look at companies that have been steadily increasing their dividends. Dividend Aristocrats have boosted their dividends every year for more than 25 years, so they make a great addition to any passive investment portfolio.

Standard & Poor's launched the S&P 500 Dividend Aristocrat Index in 2005, and as of the end of December, there were 66 companies on the list. It includes numerous well-known names like 3M, AT&T, Chevron, Coca-Cola, Colgate-Palmolive, ExxonMobil, General Dynamics, Johnson & Johnson, IBM, Sherwin-Williams, Procter & Gamble, PepsiCo, Sysco, Target, Walgreens Boots Alliance and Walmart.

Passive income is a great way to boost returns on your investments and enjoy some extra income that you don't have to work for. Dividend stocks are an excellent option for earning passive income, and you may especially want to build up a portfolio of them before retirement.

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Ankur Shah is the founder of the Value Investing India Report, a leading independent, value oriented journal of the Indian financial markets. Ankur has more than eight years of equity research experience covering emerging markets, with a focus on India and South East Asia. He has worked as both a buy-side investment analyst for a global long/short equity hedge fund and a sell-side analyst for an emerging markets investment bank. Ankur is a graduate of Harvard Business School. You can learn more about his latest views on global markets at the Value Investing India Report. -- He can be emailed at AnkurShah47@gmail.com
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