Dividend investing can be a solid source of passive income but look to diversify with other sources

Dividend investing can be a great long-term wealth builder but how good is it as a source of passive income? Can you depend on your dividend payments or returns to provide continuous and consistent income when you need it?

Dividends from blue-chip companies can be extremely reliable but depending on them as a source of income could leave you scrambling for cash.

Besides the threat of a bear market, dividend investing is only as passive as you make it. Many investors set out for a buy-and-hold strategy and then get trapped with a full-time burden of analyzing and trading stocks.

So how do you make dividend investing as passive as possible and are there ways to diversify your passive income sources?

How to Make Dividend Investing a Passive Income Source

Investing can be one of the most passive income sources you'll find or it can be a full-time job if you let it. Working as an equity analyst for institutional firms, I knew portfolio managers and wealthy investors that traded stocks on a daily basis. Even some that claimed to be long-term investors would buy shares and then change their mind on the position within a few months.

I'm not saying that stock analysis and active management doesn't produce returns, that's an argument for another post, but it certainly doesn't make for a passive income source.

To make dividend investing truly passive, you have to let some of the analysis go. You might look for good stocks to buy for long-term investments but after that, your holding period needs to be decades.

But where do you draw the line between trying to make dividend investing as passive as possible and still making rational decisions on your investments?

Do you rebalance your portfolio after stocks have made a strong run through a bull market? Do you set criteria for when to sell a stock after it has disappointed?