‘Passive income” describes money earned from doing very little active work, usually from investments such as renting real estate, dividends, stocks or funds and limited partnerships.
Rental from real estate, for example, can provide a good and stable monthly income, while dividends are another way to generate cash flow.
As listed companies generate profits, a portion of these earnings are channelled back to investors in the form of a dividend payment.
First, research the company and the history of the stock before you proceed to invest.
Investors are now able to source information and ways to invest in the stock market with the convenience of using a smart phone, with many sources available in the market for potential investors.
Look for undervalued firms – companies that have great growth potential based on their business and financial performances but whose stock price is relatively low.
In addition, dividend yields can vary significantly from one company to another, and can fluctuate from year to year.
Thus, be wise to choose the right company, one that generates more profit and distributes better dividends.
A goal for passive income investors is financial freedom.
There are four main reasons why dividend income is the easiest source of passive income.
Low cost of entry
Based on the current market mechanism, only one share is accepted on the trading platform, which means investors are able to trade just one share through bidding order.
In addition, opening a brokerage account is now fast and easy through using the latest technology.
Bidding for stocks is quite tricky, which requires investors to be smart and up-to-date – smart in buying stocks when prices are low and selling when they rise.
The power of dividend reinvestment is another reason why dividends – which are distributed to investors once a year – are considered a good source of passive income.
Thus, investors who choose to reinvest their dividend will withdraw the balance from their trading account to acquire more shares for the long-term growth of their investment.
Dividend reinvestment can enable passive income to grow significantly.
Recently, the government issued an Anukret on “Tax Incentives for Securities Sector”.
This stated that “public investors shall gain 50 per cent deduction of withholding tax on interest and/or dividend which derives from holding and/or buying-selling the government securities,
equity securities and debt securities and capital gain exemption on buying and trade the government securities, equities securities and debt securities for the period of three years from signing date of the Anukret”.
Another advantage of investing in stocks is that an investor can not only receive a dividend payment, but also enjoy capital gains from price volatility.
Capital gains represent the increase in the value of an asset. These gains are typically realised when the asset is sold.
With existing tax incentives for the securities sector, tax on capital gains is exempt and investors can freely enjoy from their investment.
Creating dividend income can be one of the easiest methods to add a second source of cash flow, with the stock market having been proven to be a good investment.
Contributed by: Cambodia Securities Exchange (CSX), Listing and Disclosure Department
Email: [email protected]/ Tel: 023 95 88 88 / 023 95 88 85
Disclaimer: This article has been compiled solely for informative and educational purposes. It is not intended to offer any recommendations or act as investment advice. The Cambodia Securities Exchange is not liable for any losses or damages caused by using it in such a way.