Table of Contents
What are income stocks?
Potential benefits and risks of income stocks
What is the difference between income stocks and growth stocks?
What to do before buying income stocks
The bottom line
Jun 21, 2022
6 min read
Income stocks can allow investors to get regular dividend payouts, whether monthly, quarterly, or annually. These stocks tend to be less volatile than growth stocks.
Investors who are looking for more ways for their money to work for them might want to explore income stocks or securities that make regular payouts. Income stocks make regular payouts, usually as a distribution of profits called dividends. These dividends can turn into another source of income for investors.
Income stocks are securities that make regular payments through dividends. These types of stocks tend to be less volatile and more stable compared to other types of stocks, like growth stocks. Income stocks might appeal to investors who don’t like the instability of some securities.
Dividends can be paid out on a regular basis—monthly, quarterly, or annually, for example. They can then be reinvested back into an investor’s portfolio.
There are quite a few different types of income stocks investors can explore. Among the ones with the highest dividend yield and ongoing dividend payout growth as of May 31, 2022 are:
IBM on the New York Stock Exchange (NYSE) has an annual dividend yield of about 4.75%.
Otherwise known as Shell (SHLX on the NYSE), this dividend stock has an 8.50% dividend yield.
This company’s ticker symbol is MO on the NYSE and gives a 6.70% dividend yield.
ACRE on the NYSE, this stock has a 8.98% dividend yield.
MPLX on the NYSE this one has a 8.67% dividend yield.
Any investment can carry some level of risk, but some are riskier than others. Income stocks have a reputation for being more predictable and can provide a few benefits to investors.
Income stocks do the work for the investor by paying shareholders a portion of earnings without them having to buy more shares. Simply owning the stock can provide an automatic payout.
Whether it’s a little bit or a lot, investors are likely to get some sort of pay through income stocks. When this happens, options include taking the cash or reinvesting the earnings back into the portfolio.
If looking for stability, income stocks aren’t as volatile as some other stocks that don’t pay dividends. They can be a choice for long-term investors or those planning to save for future goals like retirement.
Still, there are downsides of income stocks to keep in mind.
Not all income stocks offer high dividend yields. For instance, Apple (AAPL) has a 0.62% dividend yield while Microsoft (MSFT) is at 0.92%.
Not every stock is a dividend stock. While many public companies offer dividend payouts to their shareholders, not all do. Notably, many technology companies do not offer dividends. Those focused on income stocks may end up with less exposure to industries with historically high growth potential, like technology.
Income stocks and growth stocks have different goals and purposes. It’s important for investors to understand the differences to help determine which fits their financial plans.
As its name suggests, income stocks can help create passive income for an investor through regular dividend payouts. Growth stocks, by comparison, typically don’t pay dividends and instead reinvest any earnings back into the company. Amazon and Netflix are examples of growth stocks.
Income stocks have ongoing dividend payouts, with some increasing payouts to shareholders over time. If a company doesn’t perform well, money isn’t taken from the investor, but the payout is smaller. For growth stocks, investors could lose money if a company doesn’t perform as well as projected.
A growth stock is expected to have a lot of future growth, but is considered to be riskier than income stocks. Growth stocks increase in value over time and are expected to meet or exceed the market average in returns. They are expected to have a lot of future growth but are considered riskier compared to income stocks. Growth stocks don’t tend to pay dividends and any extra earnings the company makes go back into the company, not investors.
Growth stocks tend to meet or beat the average stock market returns, which is approximately 10% a year. This varies based on market returns, so if the market is down, earnings on growth stocks will also be down. This means dividend returns might pay out a higher return depending on the income stock.
There are many income stocks to choose from on the public stock exchanges, but it’s important that each investor research to find the ones that are the best fit. If considering buying an income stock, start with these steps:
When considering income stocks, investors may look at average yield, typical payout, and the frequency in which the company raises dividend payouts. Some questions that may help with this research include: What’s the average dividend return? How often are dividend payouts (monthly, quarterly, or annually)? Does the company increase dividend payouts regularly?
Investors may consider their budget for investing in income stocks and how that investment figures into their entire portfolio. Working with a financial advisor may be helpful in determining the right number or percentage of dividend stocks to hold in the portfolio to reach the right balance for the end goal. Questions an investor might consider asking themselves include: Will this investment in income stocks skew the portfolio in one direction, or will the portfolio be appropriately diversified?
Put an order in through the online broker of choice. For investors looking at specific dividend payout amounts, timing is a factor. Investors may look at the record date, which is when an investor needs to be on record for owning shares, as well as the payout date, which is when investors can expect the dividend payout. These dates can influence when investors buy stock.
Rather than trying to time the market and sell high to maximize gains on share price, income stocks can allow investors to get regular dividend payouts, whether monthly, quarterly, or annually. These stocks tend to be less volatile than growth stocks and have the potential to provide consistent, and reliable, passive income to investors.
Those who want a quick or instant win might not benefit from income stocks. These types of investments are a good choice for investors who are looking for long-term, strategic growth.
At Titan, we are value investors: we aim to manage our portfolios with a steady focus on fundamentals and an eye on massive long-term growth potential. Investing with Titan is easy, transparent, and effective.
Get started today.
Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, Titan has not independently verified such information and makes no representations about the accuracy of the information or its appropriateness for a given situation. In addition, this content may include third-party advertisements; Titan has not reviewed such advertisements and does not endorse any advertising content contained therein.
This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any strategy managed by Titan. Any investments referred to, or described are not representative of all investments in strategies managed by Titan, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results.
Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see Titan’s Legal Page for additional important information.
You might also like
Are Reinvested Dividends Taxable?
Retirement accounts are the way investors can reinvest dividends that compound the growth of their nest eggs, while minimizing the impact of taxes.
What Is a Dividend Reinvestment Plan? Drip Investing Overview
DRIPs allow investors to use their dividends to buy more shares of the company or fund without having to actively initiate a transaction.
How to Invest in Dividend Stocks
Learn how dividend-paying stocks allow investors to earn income while investing in the stock market to grow capital.
How to Calculate a Dividend Payout Ratio
The dividend payout ratio is that proportion of earnings a company decides to pay shareholders as dividends. The proportion it retains is called the retention ratio.
© Copyright 2023 Titan Global Capital Management USA LLC. All Rights Reserved.
Please refer to Titan's Program Brochure for important additional information. Certain investments are not suitable for all investors. Before investing, you should consider your investment objectives and any fees charged by Titan. The rate of return on investments can vary widely over time, especially for long term investments. Investment losses are possible, including the potential loss of all amounts invested, including principal. Brokerage services are provided to Titan Clients by Titan Global Technologies LLC and Apex Clearing Corporation, both registered broker-dealers and members of FINRA/SIPC. For more information, visit our disclosures page. You may check the background of these firms by visiting FINRA's BrokerCheck.
Various Registered Investment Company products (“Third Party Funds”) offered by third party fund families and investment companies are made available on the platform. Some of these Third Party Funds are offered through Titan Global Technologies LLC. Other Third Party Funds are offered to advisory clients by Titan. Before investing in such Third Party Funds you should consult the specific supplemental information available for each product. Please refer to Titan's Program Brochure for important additional information. Certain Third Party Funds that are available on Titan’s platform are interval funds. Investments in interval funds are highly speculative and subject to a lack of liquidity that is generally available in other types of investments. Actual investment return and principal value is likely to fluctuate and may depreciate in value when redeemed. Liquidity and distributions are not guaranteed, and are subject to availability at the discretion of the Third Party Fund.
The cash sweep program is made available in coordination with Apex Clearing Corporation through Titan Global Technologies LLC. Please visit www.titan.com/legal for applicable terms and conditions and important disclosures.
Cryptocurrency advisory services are provided by Titan. Cryptocurrency trading is provided by Bakkt Crypto Solutions LLC ("Bakkt Crypto"). Bakkt Crypto is not a registered broker-dealer or a member of SIPC or FINRA. Cryptocurrencies are not securities and are not FDIC or SIPC insured. Bakkt Crypto is licensed to engage in virtual currency business activity by the New York State Department of Financial Services. Cryptocurrency execution services are provided by Bakkt Crypto (NMLS ID 1828849) through a software licensing agreement between Bakkt Crypto and Titan. Please ensure that you fully understand the risks involved before trading: bakkt.com/disclosures.
Information provided by Titan Support is for informational and general educational purposes only and is not investment or financial advice.
Contact Titan at firstname.lastname@example.org. 508 LaGuardia Place NY, NY 10012.