Making money for their shareholders is what it’s always about.
Could I like income stocks anymore? I think I could, because it has the word income in the freaking title! They’re based around making you money! So let me explain, these stocks have always been popular among the older folk of the investing world. If I have accumulated a good amount of money and had it invested in these kinds of stocks, and if I happen to be retired, this may be the only source of income I have. Me and many other people look at these stocks as passive income and as a means to compound my wealth. Among investors who seek a side hustle who wants their money to work for them, income stocks are where it’s at.
You may be asking yourself, “how do these stocks generate income?” and the answer is through the payout of dividends. I can invest my money into a stock that pays out consistent dividends and use that money to live off of, or I can use it to reinvest and buy more stocks. I really like this idea, because this process can become automated and you can grow your portfolio without any effort. It’s like a money making machine. It is really attractive when this growth is on a monthly basis. REITs are a good place to start when it comes to making monthly income using stocks, if you don’t know what that is, do a quick google search. I will cover them more in-depth later on.
Sometimes, big Blue-chip stocks can be income stocks when they pay out consistent quarterly dividends, they are constantly increasing their payout, and they are large. There is a larger risk to your capital since the stock is vulnerable to market changes. When using something else like a REIT or ETF, their main goal isn’t capital appreciation (at least that’s the way I think about it). They are focused on creating income for their shareholders. Be careful though, because these stocks will be taxed as income and capital gains (but don’t take my word for it on tax law. Seriously, you need to be aware of those implications). Since the focus is on creating income, your initial capital should not fluctuate as much. However, be aware that they will be influenced by interest rate changes.
The bottom line with income stocks is, that if you find the ones that pay out monthly, there is going to be a larger risk than the ones that pay out quarterly. There is capital that has to be consistently drained away to pay out dividends and sometimes that can be concerning.
When looking for income investments, look for:
- High dividend yield (nothing higher than 20%)
- Steady and slow growth
- Securities tied to:
- Real Estate
- Tax efficiency
These are generalizations and meant to increase your understanding of the securities market. Any advice contained within this blog is general advice and does not consider your objectives, financial situation or needs, and you should consider whether it’s appropriate for you. The information we are giving you is for educational purposes only.
“Investing is about understanding your risk” and every time you invest in the share market there is a risk of loss. Trading is not for everyone. There is a possibility that you can lose your money. You should only act on our recommendations if you are confident that you fully understand what you are doing