2008 Passive Income Summary

OK, now it’s time to tally my passive incomes in 2008 as the second part of the 2008 Year In Review (the 2008 Stock Trades was the first part).

As you know, generating passive income, which I define as incomes without my active involvements, is one of the two goals that I have for my taxable investments (the other one being, of course, growth). When I buy stocks that I want to hold for a long time, the ability to generate dividends down the road is always one of the considerations. That’s one of the reasons I use ComputerShares to buy dividend-paying stocks through DRIP programs. I am hoping that some day in the future passive income will replace a large portion our salaries. That’s the ultimate goal for me.

Then my effort to reaching that goal took a major hit 2008. From all sources, dividends, capital gains, and interests, I collected a total of $8,557.63 in passive income, which is pretty low. I didn’t really realize how bad it is until I compared it with the passive income of 2007. Can’t believer it but in 2007, my investments generated $17,804.35 Not only I failed to improve my passive income last year, I actually lost more than half the amount from 2007, despite I owned more shares in 2008 due to continuous monthly purchases of mutual funds. Comparing the table from 2007, the decline was across the board. What used to be my biggest generator, CGM Focus (CGMFX), only got me $95 ($3,392 in 2007) and Buffalo Small Cap (BUFSX) didn’t even bring in a penny ($1,156 in 2007).

So what’s behind the huge decline in passive income? I don’t think I did anything wrong last year that caused the dismal results. Rather, it’s the general market conditions:

1. Companies cut dividend: I didn’t track which company cut how much dividend last year, but I did hear a lot in the news that companies slashed their dividend payment in half, some times halted the distribution all together, to preserve their capital bases. Even if the economy gets better this year and companies improve their balance sheets, it will take a long time before dividend payouts can get back to the level before the credit crunch began.
2. Lowered interest rates from savings accounts: Last year, I could earn 5 or even 6% yield from savings account easily. Not any more. Now I am lucky to earn 4% return for my money after the Federal Reserve cut its interest rates close to zero. Can interest rates get back to where they were in 2007? They could, but not this year.

Looking forward, I don’t expect any significant improvement in my passive income generation in 2009. If there’s any, it will probably come from dividend reinvestments and the increased number of shares that I own. In addition, I may add one or two more DRIP stocks with decent dividend payments.

Related Articles You Don't Want To Miss

1. 2007 Passive Income Summary
2. Year-to-Date Passive Income
3. 2006 Passive Income Update
4. Update: 2007 Passive Income
5. Year-to-Date Net Worth Change by Category and Passive Income Update
6. Generating Passive Income with Dividend-Paying ETFs and Stocks
7. Investment Objective: Income or Growth?
8. June 2007 Score Card — Part II: Passive Incomes