7 Amazing Income Stocks You Should Buy For 5% Yields In 2017

When investors think of less risky income, they commonly consider fixed-income securities like bonds. However, there are certain stocks also that can also provide a steady stream of income in the form of dividends.

Dividend Considerations

Dividend-paying companies are generally the ones that have reached a certain size and are no longer able to sustain higher levels of growth. These companies choose to pay out part of their earnings as a way to provide a return to their shareholders.

However, dividend payment in absolute dollar terms cannot be the only gauge of good income stocks. A more reliable measure is the dividend yield which is calculated by dividing the annual dividend per share by the share price. Income investors look for dividend yields of at least 5%, so as to attain a respectable stream of returns.

Further, many companies keep increasing their dividend payments over the years to keep pace with inflation in the economy. This is also a sign of the company’s strong growth in the past and the fact that it is poised to deliver solid earnings in the future as well. However, it is important to note the sustainability of hikes in dividends to ensure that the company is not being overly optimistic.

The company’s past dividend policy is another important factor to consider. Firms that have been paying dividends for a long time are most likely to continue the trend.

Income Investing

Dividends are a less risky component of total return compared to capital appreciation. Also, dividend stocks are historically less volatile than non-dividend stocks. This could be a vital factor if volatility levels run higher from here. These stocks are a safe bet to create wealth as dividends generally act as a hedge against economic uncertainty. Moreover, they reflect a company’s solid financial structure and healthy underlying fundamentals.

Thus, though the income investing style is almost always overlooked, such a strategy cushions an investor’s portfolio, given the said stocks’ low risk, diversification benefits and ready access to funds.

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