What are Income Stocks?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 07 February 2020
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Income stocks are securities that provide a consistent flow of dividends to the investor. While there are no hard and fast rules as to how to differentiate an income stock from any other stock offering, securities of this type tend to be stable, carry a lower rate of volatility, and hold their value from one year to the next. In some cases, income stocks may also post a slightly higher yield over time, which helps to increase the flow of income earned from the investment.

Conservative investors often look for income stocks as a means of creating an ongoing source of revenue that they can use for a number of different purposes. For some, the regular dividends from the stocks are utilized to meet day to day living expenses. Others view securities that generate dependable dividends as resources that provide the means of creating nest eggs for later years, or as a means of funding a special project like a college education. Other investors may choose to use those regular dividend payments as seed money for purchasing other securities, rather than utilizing income from other sources.


While it is possible for income stocks to be associated with any industry, most have to do with industries that have a reputation for being stable and earning consistent returns. Utilities, financial institutions, and industries involved in the creation of various forms of energy are some examples. A real estate investment trust often meets the basic criteria for an income stock, given the relative stability of this industry in comparison to other industry types.

When evaluating income stocks, many investors will seek to locate what is sometimes referred to as a dream income stock. A security of this nature will have a very low degree of risk, but also provide dividends that are above the industry average. Typically, the stock is issued by a business that has a long history of being stable and a leader in the industry.

As a mature company, the business may not be anticipating much in the way of growth, other than residual growth that occurs based on the ongoing momentum built up over the years. The company is likely to maintain its current sales figures, and enjoy some modest amount of growth based on its reputation. Along with this solid foundation, the stock issued by the company tends to post at least some growth in dividends from one year to the next, allowing for an occasional year when the returns are somewhat flat.



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