Earning Fixed & Passive Income on EasyEquities!

In the world of personal finance, investing, and building wealth over time, earning income through investing is one of the most talked-about topics. No, it’s not about earning money daily or weekly (as scammers often portray) however, earning cash every month from your investments is possible, depending on what one is invested in. This income can either be passive or fixed. Investors often include fixed-income and passive-income assets in their portfolios to achieve stability, diversification, and consistent cash flow.

Passive Income

Passive income refers to earnings generated with minimal ongoing effort or active involvement, often from investments. Common sources of passive income include dividends from stocks or ETFs (exchange-traded funds), and rental income from real estate. Unlike active income, such as a salary or wages, passive income provides steady earnings without the need for continuous labour. However, the amount earned depends on how much revenue is generated during a specific period by the underlying assets.

Many companies on EasyEquities pay dividends, enabling investors to build a passive income stream with no minimum investment. The frequency of dividend payments varies by company, with some paying annually, semi-annually, quarterly, or even monthly. This allows investors to create a portfolio aligned with their cash flow needs and financial goals. REITs (Real Estate Investment Trusts) are another way to earn passive income from real estate, as they are required to pay dividends to maintain their REIT status. EasyProperties also offers opportunities to invest in unlisted real estate, which may pay dividends to shareholders depending on the rental income received.

How to Earn Dividends

Once an instrument, like an exchange-traded fund or company, declares a dividend, shares (whether full or fractional) bought before and on the last date to trade will qualify for dividends. Payments are made on the defined payment date.

How Much Investors Can Expect

Dividends are paid on a per-share basis, with variations depending on factors like the company’s profitability, payout policies, and industry trends. The more shares you own, the more dividends you are entitled to. For example, if a company pays a dividend of R0.50 per share and you own 1,000 shares, you would receive a gross dividend of R500. In terms of yield, this is calculated by taking into account the share price. If the company’s shares are R10.00 each, the yield would be 5%.

Annual dividend yield is the annual dividend as a percentage of the stock's current price, highlighting a stock's income potential. It’s calculated by dividing the annual dividend by the stock price and multiplying by 100.

Fixed Income

Fixed-income securities are investments that provide regular interest payments and return the principal at maturity. These payments are fixed and predictable, making them less volatile than variable-income securities, whose returns can fluctuate with market conditions. Bonds are a common example of fixed-income investments. Bonds are debt instruments issued by governments or corporations to raise money, with a promise to repay the principal at a future date.

South African bonds are quoted in yield format, but EasyEquities allows users to invest by value, enabling investments of R100, R1,000, or any chosen amount. Prices are displayed in rands. The bonds offered on the platform represent specific points on the local bond yield curve, with maturities of 3, 7, 12, 17, and 25 years. These maturities currently yield between 8.8% and 12.25%, with fixed coupons paid twice a year. In this context, ‘yield’ refers to the annual income generated by the bond as a percentage of its purchase price, helping investors gauge the income potential of their investment.

How to Receive Coupon Payments

To receive the cash flow from coupon distributions, investors must own the bonds as of the close of business 14 days before the published coupon date.

For example, if the coupon dates are 21 June and 21 December, you must own the bond by the close of business on 7 June and 7 December.

How Much Investors Can Expect

If an investor holds 1,000 units of a bond with a 10% annual coupon at least 14 days before the coupon date, they would receive R50 every six months. This is calculated as 1000 × (10% ÷ 2) for semi-annual payments.

Key Considerations for Investors

When building an income-generating portfolio, it is crucial to consider certain aspects that can directly influence your investment outcomes.  Here are two essential factors to keep in mind:

• Timing and Eligibility: Ensure shares or bonds are owned before the cutoff dates for dividends or coupon payments to qualify for payouts.
• Yield vs. Risk: Evaluate the annual yield to assess income potential and weigh it against the risk and volatility of the chosen asset.

Round-Up

Investing has the potential to generate regular income through passive income (e.g., dividends from stocks, ETFs, and real estate) or fixed income (e.g., interest from bonds). Dividend-paying stocks and REITs offer steady cash flow, while bonds provide predictable interest payments with lower volatility. EasyEquities and EasyProperties simplify access to these income-generating assets, enabling investors to create customised portfolios and empowering them to take control of their financial future, starting with any amount. Together, these assets can balance risk and return, support long-term financial goals, and provide liquidity for unforeseen expenses or reinvestment opportunities.