For many, passive income is an elusive dream that seems to exist only in fairy tales. But it doesn’t have to be like that! Dividends are a popular and reliable way to achieve this. By investing in companies that regularly distribute profits to shareholders, a trouble -free and constant income stream is within reach.

This guide describes why dividend investing can be a great way to start the stock exchange.

Why dividend supplies are great for passive income

Many companies in Great Britain pay some of their profits to shareholders, known as dividends. This is why they are a great choice for passive income:

• Unlike capital gains, dividends provide income without the need to sell anything.
• Reinvesting dividends helps to grow investments, thus increasing future payments (snowball effect).
• Divide -paying shares are more stable, which makes them attractive for long -term investors.
• Many companies boost dividends over time, helping to maintain purchasing power.

How to choose the best dividend supplies

Dividends are never guaranteed, so it is vital to choose reliable supplies. Here are the key factors that should be taken into account when choosing the best.

• Dividend performance: Efficiency is the percentage of the share price paid every year. While high yields are tempting, extremely high profit can signal financial problems. The capacity from 4% to 7% is often a sweet place.

• The history of dividend growth: perfectly search companies with a long history of growing dividends. I always look for at least 10 years of consistent growth.

• Payment factor: The payment indicator measures how well a company can afford to cover dividend payments. The 100% ratio means that it spends all free cash on dividends – which is not balanced for long. I am perfectly striving for a payment indicator below 70%.

• Financial force: Strong companies with constant revenues, debt -to -management debt and good profit margins more often maintain and boost dividends. Always review the balance and check the latest annual report to find out about the company’s stability.

Example of high -performance dividends

Let’s apply the above points to the popular FTSE 100 Dividends.

Londonmetry property (LSE: LMP) is the British trust of real estate investment (REIT), which means that he must transfer to shareholders at least 90% of his profits. This structure makes it a reliable dividend payer, ideal for passive people looking for income.

It should be remembered that tax treatment depends on the individual circumstances of each client and may change in the future. The content in this article is provided only for information purposes. It is not to be, nor does it constitute any form of tax advice.

It is also good for beginners, because his business model is basic: he generates income from real estate rental and transfers most of the profits to shareholders.

However, REIT is based on interest rates that can affect the costs of loans and valuation of real estate. Downonal booms may also reduce the demand for logistics real estate, limiting profits from renting and hurts. Such a risk should always be taken into account.

Its dividend efficiency usually changes between 4% and 6%-a good range for a portfolio concentrated on income. To adjust the inflation, it increases the dividend at a rate of 5.27%over the past 10 years.

Make the dream come true

Building passive income using dividends is a popular method that has helped many investors build a long -term wealth. By choosing high -quality dividend shares, reinvesting payments and maintaining a long -term way of thinking, a reliable stream of income is possible.

Regardless of whether he strives for additional retirement income or the method of supplementing earnings, investing dividends is a strategy that is worth considering.