Investing in dividend paying stocks is about as residual as it gets.
This strategy is about investing in companies that pay out a piece of their profit (dividends) on a regular basis. These would be publicly traded companies and are often known as ‘blue chip’ stock.
Blue chip stocks are giant companies with solid reputations. Think of General Electric, Intel, Visa, Wal-Mart and Walt Disney — financially fit corporations with dependable earnings, usually paying additional income to investors in the form of dividends.
The upside is that you will invest once and receive a regular dividend payment without doing anything else. The catch of course is having the money to purchase the stock in the first place or at least enough money so that the income will make a healthy contribution to your lifestyle.
If you’re young then you have the advantage of buying stock on a regular basis and building up your portfolio.
Dividends have the added advantage of receiving preferential tax treatment if purchased outside an RSP and will be tax free if purchased inside a TFSA.
How to get started:
Set up a discount brokerage account through your bank. Do a little research and look for one or two stocks that pay a regular dividend. I would recommend looking in the gas & oil industry, banking industry or household goods. Look for a name you recognize and even do business with. A great dividend rate would be 4 – 6% and that will increase over time as the value of the shares increase. Set aside a regular monthly amount and start buying some stock. Reinvest the dividends you receive by buying more stock; this will build up your portfolio faster.
If you have a large amount of money to invest then I would recommend some professional advice from a financial advisor or stock broker.
Keep in mind that this is a residual income strategy and like anything you don’t want ‘all your eggs in one basket’.
You definitely want to make Dividend paying stocks a part of your residual income strategy.