Passive income is money earned that doesn’t require a lot of effort or active involvement from you. In other words, it's income that you earn without actively working for it on a regular basis. Passive income streams often require an upfront investment of time, money, or resources, but once set up, they can generate income regularly with relatively little ongoing effort. There are a few different ways to generate passive income that can be done through investing.
Dividend stocks
Dividend income is a favoured strategy for investors seeking a steady stream of passive income. Dividends are a kind of reward paid to investors by certain companies they are invested in. This can either be in the form of additional shares at a specific ratio, or a cash pay-out. The amount you receive depends on how many shares you own.
Not all companies pay dividends. Whether a company pays dividends depends on various factors, including its financial health, growth prospects, and the decisions made by its management and board of directors.
While some companies can only afford to pay investors dividends once a year, some are able to pay as much as quarterly, or even monthly. On the other hand, special dividends are paid out to investors on rare occasions or once in a while, depending on the company’s performance.
If you want to keep up to date on which companies are paying dividends, you can read our weekly updates.
Learn more about dividends and how they work by accessing our Thrive course on EasyAcademy, which you can access from the top right profile menu in your EasyEquities account.
Dividend ETFs
Dividend Exchange Traded Funds (ETFs) are investment funds that are traded on stock exchanges, and they specifically focus on holding a diversified portfolio of dividend-paying stocks. These ETFs provide investors with a convenient way to gain exposure to a broad range of dividend-paying companies without having to buy individual stocks.
Dividend yield is an important metric for dividend ETFs. It represents the annual dividend income as a percentage of the ETF's current market price. Higher dividend yield may indicate a higher income potential, but it's important to consider other factors like the sustainability of dividends.
Dividend ETFs are available in your local and offshore EasyEquities wallets. In South Africa a popular dividend ETF is the Satrix Divi Plus ETF which consists of high-dividend-yield stocks listed on the Johannesburg Stock Exchange (JSE). In your USD wallet you will find ETFs like the Vanguard Dividend Appreciation ETF, which focuses on US stocks with a history of increasing dividends.
ETFs are considered a low cost way to invest because you are able to get access to a number of different shares with one transaction.
You can find and compare all local dividend ETFs by performance, size, risk, asset class, strategy and more by using our EasyCompare tool.
Rental income
Rental income from property can be a good way to earn passive income. Owning a physical property and renting it out is one route to go. However this requires massive capital outlay (the price of the property you are buying) and so becomes less accessible for many people. In addition, managing rental properties can require time, effort, and expertise. This includes dealing with tenant issues, maintenance, and potential legal matters.
EasyProperties allows you access to regular rental income in the form of quarterly dividend payouts from the property you are invested in. Unlike traditional property investing, you can invest in a property with any amount you want and will receive rental dividends based on the amount you have invested. This requires no effort on your part; EasyProperties manages the property and the finding of tenants on your behalf.
Each property is given a projected net rental yield. Net rental yield provides a measure of the return an investor can expect to receive from rental income after deducting certain expenses. It is calculated by expressing the annual rental income earned from a property as a divided by how much the property cost. Investors often seek higher net rental yields as they indicate greater potential for income generation.
You can view the current available properties on EasyProperties here and read more on how EasyProperties works here.
Government Bonds
A government bond is a way for a government to borrow money from investors. When you purchase a government bond, you are essentially lending money to the government in exchange for periodic interest payments and the return of the principal amount at maturity.
Government bonds can be considered a form of passive income, as they provide regular interest payments to bondholders without requiring active involvement.
Investors in government bonds receive regular interest payments and get the return of their principal when the bond matures, making them a source of income and a way to preserve capital.
You can view the current available Government Bonds on EasyEquities by navigating to the Invest Now tab and selecting the Bonds filter in the Investment Type category. You can read more on how Government Bonds work here.
