Portfolio Income

Portfolio income is income from investments, dividends, interest and capital gains. Royalties received from property held for investment is also considered portfolio income. Portfolio income does not come from passive investments and is not earned through regular business activity. Typically, income from interest on loaned money is not considered portfolio income.

The three main categories of income are active income, passive income and portfolio income. These categories of income are important because losses in passive income generally cannot be offset against active or portfolio income.

• Purchase High-Paying Dividend Stocks: Investors can increase their portfolio income by buying stocks that pay an above-average dividend. Companies may raise their dividend payments as revenue and profit increase. Dividend payments can be paid directly to the shareholder or used to purchase additional shares in the company, referred to as a dividend reinvestment plan (DRIP). For example, a company may pay a cash dividend of $2 per share annually, therefore, if the investor has a holding of 200 shares, he or she would receive a cash dividend payment of $400 ($2 x 200 shares).
• Purchase Dividend Exchange-Traded Funds: Buying ETFs that specifically track high-paying dividend stocks is a cost-effective way to increase portfolio income. For example, the Vanguard High Dividend Yield ETF tracks the FTSE High Dividend Yield Index. This index includes 396 stocks that have high dividend yields. Other popular selection criteria for dividend ETFs focus on how many years the company has paid a consecutive dividend and companies that have a history of increasing their dividend payment each year.