John D. Rockefeller once said, “Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.”
Despite the fact that I literally wrote the book on dividends, I find it sad that the then-richest man in the world only received pleasure from businesses distributing excess cash to shareholders.
That being said, I do love me some dividends – and all forms of passive income, really.
When I open my brokerage statement, the first thing I look at is not the account balance – it’s the income that has been earned and the projected income for the rest of the year.
I like a growth stock that goes to the moon as much as the next guy. But with those kinds of stocks, you have to do some babysitting: placing trailing stops, making sure you don’t give up too much of your gains, and worrying about them in bear markets. There’s a lot of hope involved.
Passive income strategies tend to have much lower risk and generate immediate income (rather than making you wait to cash in after the stock hopefully rises in the future), and the income can help offset downward moves during volatile markets like we’ve been experiencing lately.
Below are some of my favorite ways to pocket passive income:
Dividend Growth Stocks
Owning dividend growth stocks is an important strategy for not only generating income today, but also maintaining or increasing your buying power tomorrow. Whether inflation is high or low, prices rise over the years, and your income better keep up. Otherwise, your standard of living will suffer.
Stocks that have histories of raising their dividends every year will help you boost your buying power year after year.
Bonds
Bonds have become an increasingly important part of my portfolio.
When the market tanks, I don’t worry at all about my bond portfolio. That’s because I know that no matter what stocks are doing, my bonds are going to be just fine. They’re going to continue to pay me interest, and then at maturity, they will pay me $1,000 per bond, regardless of what I paid for them. If I paid $1,000, I get my money back. If I paid $950 or $900, then I make a profit on them in addition to the interest I’ve been paid.
The only way that doesn’t happen is if the company goes bankrupt. Otherwise, I get paid $1,000.
No stock can guarantee what its price will be on a specific date in the future.
I love the stability, predictability, and profitability of bonds.
Options
Many people think trading options is risky. And it can be – if you’re speculating with them.
But professional options traders make consistent money by selling options rather than buying them. Smart regular investors do the same.
There are various types of option trades that are considered conservative strategies because they minimize your risk and generate income, such as selling covered calls, selling naked puts, trading credit spreads, and others.
These strategies are easier than you think and can produce hundreds or even thousands of dollars in income in a few weeks or months, depending on your timeline and how much you invest.
Rental Real Estate
Renting out your properties certainly can come with headaches, but it’s often worth it. Not only do you generate income, but you also get tax write-offs, and someone else essentially pays down your mortgage.
If you are handy, it can be especially lucrative, as you won’t have to pay a handyman or plumber every time there’s a leaky pipe.
Turn That Frown Upside-Down
I am currently using dividend stocks, bonds, and options to generate income. I have owned rental real estate in the past, and I am looking to do so again if real estate prices drop.
I’m fortunate that I love my job and don’t mind working hard for my paycheck. But seeing that passive income come in every month definitely puts a smile on my face – maybe as big as John D. Rockefeller’s.