As more individuals seek financial independence and explore ways to live without traditional employment, the concept of passive income gains traction. Among investment options, dividends stand out as an attractive avenue for generating ongoing income without needing to liquidate shares and deplete one’s investment capital. However, determining the necessary investment amount to make dividends a viable income source varies greatly from person to person. Let’s delve further into this topic.

How dividends work

When a company generates profit, it has several options for utilizing that profit. It can reinvest it into the company for growth, distribute it to owners (as in privately held companies), or pay it out to shareholders in the form of dividends (in publicly traded companies).

As a shareholder, if the company pays dividends, you are entitled to a portion of the profit based on the number of shares you own.

Dividends can be disbursed as cash (via digital deposit or check) or as additional shares of company stock. The frequency of dividend payouts varies by company, with quarterly payouts being the most prevalent.