Insights

Is being a passive income investor becoming more difficult?

Does a low interest rate environment and the recent stock market rally make obtaining a passive income more challenging than it was in the past?
The post Is being a passive income investor becoming more difficult? appeared first on The Motley Fool Australia. –

A little dog wearing sunglasses and bathrobe holding a cocktail, indicating a life of luxury enjoying passive income from cheap shares

With interest rates at low levels, the stock market having experienced a rally in recent months, and the economic outlook being uncertain, making a passive income may seem to be an uphill struggle.

However, a number of income shares continue to offer attractive yields. They may also deliver rising dividend payouts over the coming years.

As such, now could be the right time to buy a diverse range of dividend stocks. Over the long run, they could produce a generous income return on a relative basis.

Challenges when obtaining a passive income

Many investors may be tempted to turn to dividend shares at the present time to make a passive income. After all, low interest rates available on other assets may push them towards equity markets.

The problem, though, is that the recent stock market rally has caused many shares to have lower yields than a handful of months ago. When coupled with an uncertain economic outlook that could have a negative impact on shareholder payout growth rates, the outlook for dividend investors may seem to be somewhat downbeat.

Focusing on overlooked dividend shares

Despite these factors, a number of companies continue to offer relatively high yields at the present time. Certainly, there has been a stock market rally. But not all sectors or companies have risen in line with the wider market.

Some industries and businesses continue to be overlooked by investors, perhaps due to more modest earnings growth rates in a bull market, which could mean they offer good value for money.

Buying such businesses may be a sound move for passive income investors. They may be able to buy solid dividend-paying stocks that are able to grow their shareholder payouts in the coming years. Such companies may be unpopular because they have a less exciting business model than other shares that have failed to engage investors to the same extent.

Diversifying to build an income portfolio

As mentioned, an uncertain economic outlook is likely to remain a risk facing passive income investors in the coming months and years. Even the most appealing dividend shares could experience financial difficulties.

Therefore, it is important to build a diverse portfolio that can offer a higher degree of resilience and a more robust income stream than a concentrated group of stocks. Doing so is a cheaper and simpler process than it has been in the past.

For example, regular investing services can reduce the cost of single share purchases so that commission represents a smaller proportion of a portfolio’s size. This may make diversifying even easier for smaller investors.

Moreover, many companies have become increasingly diversified in terms of their geographical exposure. This may allow investors to buy domestically-listed businesses to generate a passive income that is dependent on the performance of the world economy.

This may result in a more robust income return that can benefit from strong growth rates in some regions over the coming years.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

See The 5 Stocks

*Returns as of February 15th 2021

More reading

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 

The post Is being a passive income investor becoming more difficult? appeared first on The Motley Fool Australia.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;


To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.


An active and funded account with a positive trading balance is required to continue to have access to the tools;


Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;


Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!