My favorite thing about investing in the stock market is the dividends. Dividends truly are residual income because you get a dividend check every three months from a dividend paying stock. The only thing you had to do was buy the stock! How many shares of stock you own in the dividend paying company determines the amounts of your dividend checks. The more stock you own, the larger your dividend checks will be.

     How they produce passive income: Dividends are payments that a company makes to you just for owning some of its stock. Some examples of companies that pay dividends are General Electric, Boeing, and now Microsoft pays a small dividend. However, those aren't the stocks we are going to be focusing on. We will be focusing on stocks that pay large dividends to its stock holders every three months. Because the amount the dividend checks depend on many different factors, it's impossible to make a general estimation about how much passive income they produce. I'll present some real life examples of dividend paying stocks after the next few paragraphs.

     How to create this asset: A brokerage account is needed in order to buy the dividend-paying stocks. I recommend using Zecco.com. if you don't already have one. Setting up a brokerage account with Zecco.com is very simple, and don't have a minimum balance opening requirement like other brokers. So, if you plan on starting out with small investments, Zecco.com. is for you.

     The next step is to find a company that has a high dividend yield. A dividend yield is like a savings account's interest rate. It's a percentage that tells you what you can expect to make from your money in dividends. So if a stock has a dividend yield of 10%, you'll be paid $100.00 per year if you buy $1000.00 worth of that stock. To find some dividend paying stock of a company, I use MSN.com's stock screener. I type in what sort of financials that I would like the stock to have, and how high the dividend yield should be. After I click "Find", a list of about 50 stocks appears that either meet or exceed my requirements.

     Then I simply log onto my Zecco account, type in the company's stock symbol, type in how many share's I'd like to buy, and click buy. Within a matter of seconds, I own the number of shares I requested, and I wait until they the next time they pay out their dividend to get my dividend check. The more money you invest in the dividend paying stock, the more money you'll make.

     A real-life example: : A good example of a company that pays high dividends is Annaly Mortgage Company. Annaly Mortgage Company is a real estate investment trust (REIT for short). REIT's are required by law to pay out more than 90% of their net income in the form of dividends to stock holders. What Annaly Mortgage Company does is provide mortgage's for residential and commercial use. They then make their money off of the interest they charge. As of August 2004, Annaly Mortgage Company's annual dividend yield is about 12%. That means for every $1,000.00 I invest in the company, I can expect to make $120.00 a year off of dividends.

     When you buy stock from any company, they are basically taking your money and using it to make more money. In Annaly Mortgage Company's case, they'll make your money grow by using your money to provide mortgages, and making a profit off of the interest. In return, they'll pay you a large dividend. Annaly Mortgage Company trades under the stock symbol NLY in the NASDAQ index. You can visit their website for more information at http://www.annaly.com

     For more information:

• http://www.Zecco.com. - Provides brokerage accounts so you can begin investing in dividend-paying stocks. Also allows you to reinvest your dividends.
• http://moneycentral.msn.com - Provides a free stock screener that you can use to find a stock that has a high dividend yield.
• http://finance.yahoo.com - Provides online discussion boards on almost every company, and also gives the latest news on that particular company.