Let’s understand, what stock dividend is ? Stock dividend is a cash payment to the shareholders of the company based on their current ownership. Every time a company makes some profit a part of that profit is invested back into the company and the remaining amount is distributed to the shareholders.
Company’s board decides the amount of dividend to be paid. Reason why stock dividend is the best side income source is because it is passive.
Let’s understand what do we meant by passive.
TYPES OF INCOME SOURCES
Based upon how to get the income or generate it defines what type it belongs to. So From a high level income can be classified into 2 major categories passive and active.
Active Income Source: Income source which you trade your time for in exchange for the money. Meaning it requires time effort and energy to manage and maintain the cash flow.
Common examples includes: Jobs, businesses etc.
Passive Income Source: Income source which you don’t have to trade your time for. therefore generating money on its own. Most of these include money from money generation strategies.
Common examples: Stock dividends, investments, writing a book, making a course. Although writing a book is active initially but after you write it then we can call it passive.
How stock dividend is the best SIDE income
- Passive Nature thus making It is completely independent of your time. You just have to buy and hold a stock and it will keep on paying you regularly.
- Compounding Nature resulting in a compounded growth in the amount of dividend you are getting. Let’s say the dividend yield is 1% and you invest 100 bucks which is growing at 10% CAGR. For the first year you will get 1 buck as a dividend and next year you will get 1.1 buck as a dividend.
Conclusion
So considering the effort you put and the reward you are getting one can say it is a free money. All you have to do is put some effort in picking the stocks that are regular in paying dividends. Also dividends can really help you become financially free and get out of your regular job and normal life. Therefore stock dividend is the best side income.
Coming to the India market which is a growing market, therefore have a much higher impact of compounding. Which makes stock dividend a very good income source if you are planning to invest for a longer horizon.
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