Dear DTA,
I’m looking to build true passive income. I keep hearing this term. But it seems like it’s being thrown around a lot. The income I see isn’t really passive. I want the most passive income possible. Would this be possible with stocks or trading?
-Mikah Z.
Hi, Mikah.
Thanks so much for writing in. We really do appreciate your readership!
That’s a interesting question.
One I don’t remember coming across before.
Yet it’s extremely relevant.
One might call it “click bait”.
That said, I’m not sure it’s possible to fully quantify a “passive” source of income.
I think the definition of “passive” will vary from person to person.
Moreover, in my opinion, there are degrees of passivity.
Rental income from properties could be considered passive income.
But I’d consider that much less passive than, say, coupons from a bond.
The problem with a bond coupon, though, is that it’s static. Inflation will eat away at those payments.
With that in mind, I think dividends hit the “sweet spot” for both a high degree of passivity and the ability to grow over time.
More specifically, I’m talking about growing dividends from high-quality dividend growth stocks.
And I’ll tell you how best to capture these growing dividends.
It’s by taking advantage of the dividend growth investing strategy.
Please be sure to read through fellow contributor Dave Van Knapp’s Dividend Growth Investing Lessons for the A-Z on DGI.
I personally used this strategy to go from below broke at age 27 to financially free and retired at 33.
I lay out exactly how I did that in my Early Retirement Blueprint.
Essentially, this strategy involves buying shares in world-class enterprises that pay reliable and rising cash dividends.
These world-class enterprises are selling the products and/or services the world needs and demands.
They make a lot of money by providing said products and/or services.
In fact, they tend to make more money, year in and year out.
Shareholders are the collective owners of a publicly-traded company. And the owners deserve their fair share of growing profit.
Enter growing cash dividends.
Growing cash dividends are tangible proof of growing profit.
And I’d argue that growing dividends are the best possible source of passive income.
That’s because there’s nothing to do after you buy a high-quality dividend growth stock.
You could buy a stock once, do nothing thereafter, and collect growing dividends for the rest of your life.
The passivity is off the charts.
There’s no 1-800 number to call. No clocking in at a job. Certainly no tenants at rental properties to deal with.
You get paid. No further action on your part.
I’d know plenty about this.
My real-money FIRE Fund generates four-figure passive dividend income on my behalf.
I collect those growing dividends no matter what I do.
A company declares a dividend. The dividend is then sent out to shareholders. I log into my brokerage account on “pay day”. The money is there.
I literally make money while I sleep.
It’s like magic.
I don’t lift a finger or otherwise do anything at all to collect my money.
Wake up. Or sleep in.
Stay in my pajamas. Or go out into the world.
Say what I want. Do what I want.
It doesn’t matter.
I get paid.
Better yet, I get paid more and more, every single year.
Many stocks in my own portfolio are regularly growing their dividends at 8%+ annually.
That beats the pants off of static bond coupons.
And it greatly exceeds the rate of US inflation.
This means my purchasing power is regularly increasing.
Plus, I don’t even have to ask for a raise. Nor do I have to beg a tenant at a rental property to pay me more money.
I wake up to pay raises all the time.
Didn’t lift a finger for the dividends. Didn’t lift a finger for the dividend raises, either.
It’s fantastic.
Mikah, you’ll never be short on opportunities as a dividend growth investor.
You can find more than 800 US-listed dividend growth stocks on the Dividend Champions, Contenders, and Challengers list, which is an invaluable data source.
Furthermore, I personally highlight a compelling long-term dividend growth stock investment idea every single Sunday.
I do that via the Undervalued Dividend Growth Stock of the Week series.
This is a weekly series that features high-quality dividend growth stocks that appear undervalued at the time of publication.
These are some of the best long-term opportunities in the entire market.
Each stock could set you up with a lifetime of growing dividends.
It’s ultimately up to you to decide what “passive” really means, and what’s most passive.
But I think I’ve made my case for growing dividends, Mikah.
No matter what you decide on, I’ll leave you with my best advice of all.
Start today.
I wish you luck and success.
Jason Fieber
We’re Putting $2,000 / Month into These StocksThe goal? To build a reliable, growing income stream by making regular investments in high-quality dividend-paying companies. Click here to access our Income Builder Portfolio and see what we’re buying this month.
Disclaimer: Jason Fieber is not a licensed financial advisor, tax professional, or stock broker. Please consult with a licensed investment professional before investing any of your money. If your money is not FDIC insured, it may decline in value. To protect the privacy of our readers, any names published in this article are under aliases. In addition, text may be edited, omitted or paraphrased for grammar or length.