Passive Income with Dividends

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As I am digging my way out of debt, I’m beginning to ask myself, “What’s next?” I know that job security is at an all-time low and I’m very fortunate to have employment with a reputable company. However, based on the current economy, my employment could end at any time. I have known quite a few people that have expressed their confidence in their job security, but a few weeks later, their boss said ‘see-ya’. The way to defend your finances from this scenario: passive income.

Passive Income

What if you were completely dependent on your current income? Maybe you’re even living paycheck to paycheck. All of the sudden, you lose your job and your income has plummeted to $0.00 a month. It gives you a pretty sick feeling doesn’t it?

Now, what if you have developed a passive income that generates an extra $2,000 a month and is completely independent of your regular day job? Losing that job wouldn’t be quite as frightening would it? Sure, you’d have to pinch some pennies, but you could survive.

Dividends

Today, one of the most popular forms of passive income is dividends. Simply put, dividends are consistent quarterly payouts from companies to their share holders. If I owned a stock that paid dividends, I would receive a check from them after each quarter.

Years ago, it used to be quite common for companies to pay a dividend, but more recently, it has become popular for a company to worry more about growth and improving the value of the stock rather than payout earnings to their share holders. But, there are still some great companies that offer dividends. If they do well, not only will their stock price increase (which increases the value of your portfolio), but they also continually pay those dividends.

2011 Stock Picks

After reviewing the list of stocks that offer dividends, I am considering these for my portfolio. As a sidebar, if you’re considering a stock purchase, make sure that you use this TradeKing promotional code for the best deal.

CIM is my top pick. This is a fairly new company, but they obviously pay out a great dividend and have seen consistent growth in the past couple of years.

MPW is a real estate operations company that mainly works with health care facilities. This company has a solid foundation with a debt/equity ratio of 0.41, plus the health care field is on the rise (thank you baby-boomers). Also, the company has shown constant growth of the past few years (see below)

BKCC jumped out at me as well. Their debt/equity ratio is only 0.32 (meaning that they have far more equity than debt), plus there is a consistant rise in the stock price.

SPH and MO have a smaller dividend, but both of these companies has shown a tremendous increase in their stock value in the recent past. If this increase continues and they continue to pay out their dividend, there is simply no downside to this move.

Summary

If these stocks were purchased today and their stock price did not move up or down, you will still earn a profit because of the dividends! This is why it is considered passive income.

In the short term, this will not create unbelievable wealth, but over time, these dividend earnings can be put back into the market, and then you begin to benefit from compound interest. That is a beautiful thing. Before you know it, you’ll have created a healthy passive income.

Do you have any thoughts about my portfolio considerations?

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Passive Income

Derek

AUTHOR Derek

My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.

19 Comments

  1. I have been doing good with dividends this past year. Great to see some interest!

    Did you look at the dividend aristocrats? Their yield is usually lower but they have shown to consistently increase their dividends year after year. I have AT&T and Kimberley-Clark on the US side. Otherwise, my dividends are from Canadian companies.

    • Haha, I can see that most people are NOT interested in dividends based on the lack of comments, so I’m definitely glad you dropped by!

      I really only looked at the dividends that offered more than 5% of their share price. I noticed At&T has been solid, but their stock price has not increased in quite a long time – I was really trying to focus on the companies that had a potential for an increase in share price and dividend payouts.

  2. Why CIM? They haven’t shown much increase in the past few years. Is it only for the dividends?

    • Yes, it is mainly for the dividends. The fact that their stock price has held constant and they have a 15% dividend – that means a 15% return! That’s better than anything else out there!

  3. How far back have you been looking when considering companies to buy? 4 or 5 years of consistent growth is good, but 10 to 20 is much better. If the company itself hasn’t even been around that long, it’s even more important that you choose carefully. All of the dotcom stocks looked great and were selling quickly until around 2001-2002. I know this post is regarding dividends, but you won’t receive much in the way of dividends from a bankrupt company. I’m not saying you’re wrong at all, quite the opposite, I just hope you’re looking at each company’s track record rather than their (perhaps short) burst of success.

    • Jason,

      I admit that I did not look for 10 to 20 years of history on the individual stocks. In fact, I’m not sure that’s such a great idea. A company that has been around for 20 years is most likely at full maturity and does not have that much room for growth. Now if you were talking about mutual funds, then yes, certainly I would choose a fund based on a 20 year history because that is a measure of the fund managers (they are continually buying new stocks and dropping old ones, but how the fund is managed should stay consistent).

  4. Every working person in America should have at the minimum $10,000 in cash for emergencies. Perhaps an unexpected health situation, a lay-off, a sick child/parent. Life is full of unexpected situations that can need immediate cash.

    Not all debt is bad debt. We all will eventually die and will owe someone when we leave this world. My challenages earlier in life was figuring out what is good debt and bad debt! bad debt – any high interest loan. Good debt – mortgage, student loans, car notes, those are all things we need in life to continue to grow. Save on my friends!~

    • Thanks for the comments Diane! I certainly do agree with you about the emergency fund. My wife and I currently have about a months supply of expenses saved in our emergency fund. We will up this amount to about 6 months worth after our debts are paid off (we’re hoping by March!) Also, we live so far below our means that if one of us lost our jobs, we would still survive for quite a long time on our reserves.

      I do believe that there is good debt and bad debt, but as I go through life, there are fewer and fewer debts that I consider “good”. A home mortgage is somewhat necessary, but if an individual can purchase one outright without debt, I would encourage that. Student loans can be necessary at times, but those buggers are hard to pay off! I’ve learned to hate ours! If a student can work during school to limit their debt, I would strongly suggest it. And, as for the car loans, I never encourage that. Taking a loan on a depreciating asset is always considered bad debt in my opinion.

      Again, thanks for the encouragement! Stop by again soon! 🙂

    • No problem Buck! Dividends aren’t all that exciting, but they can create some great passive income if you have some money to invest.

  5. Hey just found your site clicking around the Yakezie. Great Stuff. I took a look at your latest income report for Sept 2011…do you invest in dividends still? Or is your income report only based on web based income?
    John recently posted..Quick and Easy – Scan for Stocks Paying High Dividends

    • Thanks for dropping by the site! My income reports are only from my blog income. And actually, they’re only from my one site! Soon, I will have multiple sites as well as eBook income. So, I should have some extra cash to report in the upcoming months! Glad you enjoyed it!


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