Dividend Stocks Are the Best Passive Income

Dividend-paying stocks are companies that offer a regular payment to investors in the form of cash. The payments are measured as a percentage of the current stock price, usually paying out 1% to 3% APY. 

But dividend stocks aren’t necessarily the best form of passive income. Here are a few downsides:

  • Dividends reduce the stock price
  • Dividends are taxed as income (unless in a tax-advantaged account)
  • You need a large investment to earn much per month

Dividend stocks can be great investments when you are looking for extra income, but to earn even $100 per month you usually would need thousands of dollars up front.

Bottom Line

Passive income isn’t the Holy Grail that everything says it is. It requires hard work and up-front investment.

Don’t expect to retire next year from passive income if you’re just getting started; it takes a while to build a meaningful income on the side. While you might need to take some action to build your passive income streams, it is worth it in the long run. Passive income can help you do more of what you enjoy and eventually quit your job once your passive income covers your monthly expenses. Until then, keep working hard to build more passive income into your life.