Income Investing StrategyA income investing strategy involves buying shares for their dividends. The income investor isn’t necessarily interested in buying and selling shares for profit. They just want the dividends as an income stream.Let’s look at income investing . . . Why income investing worksDividends can provide a reliable source of income for investors with a lot of capital. For example, one million dollars invested at 5% per annum results in $50,000 per year in income.Tactics of income investingIncome investing involves choosing companies that pay a high dividend yield.With this approach, you only invest in companies that have a history of consistent dividend payments. Learn as much as you can about the company’s dividend policy. Stick to the big, strong market leaders. Advantages of income investingThe income investing strategy allows the investor to concentrate on the strongest companies. Companies that pay regular dividends are usually good investments. Strong companies can afford to pay dividends.Share price fluctuations don’t worry the income investor too much. They’re only really interested in the dividends. If the investor has enough investment capital the income generated could be substantial. Disadvantages of income investingStock price appreciation will lead you to wealth more quickly than dividends.Dividend yields are sometimes only marginally more than the non-risk rate of return (i.e. government bonds). And of course, sometimes less. Bank term deposits might be a better option in some situations (and with reduced risk). Who uses income investing as a strategy?I don’t know of any investor who became famous for investing in dividends, but certain astute investors only buy shares in companies that pay dividends. Their logic is that:
Stock market strategies: Fundamental Analysis – the company’s financial numbers and its story Technical analysis – examining stock charts and technical indicators Value Investing – buying good companies at the right time Growth investing – buying companies that are growing fast Income investing – buying companies for their dividends Index investing – buying into a stock market index fund |