Dividend stock – the secret to a passive income

Do you want a passive income that pays for your basic needs? An income that allows you to pursue whatever dreams you want to pursue without having to worry about paying the rent?

To be able to build a passive income is a dream shared by a lot of women (and men). Very few of those women think that they could be able to build a passive income that could pay their bills. This is sad. To build a passive income is a lot easier than it sounds. It does require sacrifice but you can do it if you want to.

The easiest way to build a passive income is to invest in high yield dividend stocks. Dividend stocks are stocks that pay money to their owners each year. High yield dividend stocks are stocks that pay a lot of money to their owners each year. The dividend yield is automatically deposited into your account each year. You can use the money to do whatever you want. Dividend stocks provide you with money that you can use to pay the rent without having to sell the stock. They provide you with an income. Your money is working for you so you do not have to. Your stock will pay you more and more money for each year that passes. At least if you chose good dividend stocks. Many stocks on the stock market have raised their dividends every year for more than 20 years.

Below; I am going to look a little bit closer at what it takes to build a passive income you can live on.

How much money do you need

The first question we have to answer is how much money you need each year. If we know how much money you need then we can calculate how much money you need to invest in stock to be able to live on the dividends — the more money you need to live the more money you need to save.

Calculate your rent and all other expenses to calculate how much you need to live comfortably.

In this example, we are going to pretend that you need USD 50 000 a year to be happy. It is possible to build a dividend portfolio with dividend yields of close to 10%, but it is better to build a more diverse portfolio with a dividend yield of 5%. Anything above that is a bonus. You would need a portfolio with 1 000 000 in stock to be able to live off the passive income.

1 000 000 might seem like more than you could ever save. I can understand that. But you do not need to invest 1 000 000 to get a portfolio worth 1 000 000. The stock market has historically given a 12.5% return each year. This means that your money doubles every six years. If you buy stock for 500 000, then you will have a 1 000 000 in 6 years. If you invest a mere 100 000, then you will have a 1 000 000 in 19 years. Saving 100 000 and investing them in stock is a lot more doable than investing one million. One hundred thousand is still a lot of money, but it is not an impossibly large sum to save up.

But it gets better. You can choose to reinvest your 5% dividends each year. If you do that, then you can go from 100 000 to close to a million in 14 years. Or from 50 000 to 1 000 000 in 19 years.

Saving 50 000 can be enough to allow you to retire comfortably in less than 20 years. Saving 50k is not easy. But it is doable and is a very attractive option when you see the rewards it will give you.

Read our guides to saving money to learn how you can reduce your expenses and save more money.

Choosing stock

If you want to build a passive income, then you should invest long-term in stock that has a history of high and reliable dividends. This type of stock is often referred to as dividend kings. You should research all stocks you buy to make sure that that they have a stable history and a stable future. Try to find stocks that you can invest in and keep for 10 years or more. You should regularly re-evaluate all your positions but your goal should be to never sell any stock once you have bought it.

There are plenty of different websites out there that can help you find good dividend stock. I recommend that you buy stock in companies active in different industries and based in different countries.