Examples of Income Stocks

One stock market strategy is to invest in income stocks. These are stocks that pay a relatively high yield in the form of dividends.

Function

Dividends are a portion of a corporation's profit or cash flow paid out to owners of the stock. Income stocks usually pay a dividend quarterly. Dividends are also referred to as distributions.

Types

The types of stocks that are usually considered income stocks often have the words partnerships or trust in their description or name. Examples are real estate investment trusts, or REITs, master limited partnerships, limited partnerships and Canadian income trusts.

Features

The trusts and partnerships are formed under special provisions of the tax code that requires them to pay out the majority of their cash flow as distributions. The result is stocks with high dividend yields.

These stocks are primarily focused in the real estate, transportation and energy sectors.

Alternatives

Any stock that has a dividend yield significantly above the market average can be considered an income stock. Some stock market sectors that historically have had stocks with high yields are utilities, energy and ocean shipping.

Considerations

Corporations are under no legal obligation to pay out dividends. Investors should research the dividend history and income coverage before buying a stock for its yield.

Potential

Some companies have increased their dividend payouts year after year for many years. Standard & Poor's maintains a list of "Dividend Aristocrats." These are companies that have increased their distributions for at least 25 straight years. In 2009 there were over 50 Dividend Aristocrats.

References

• Standard & Poors
• Dividend Growth Investor

Resources

• Dividend Aristocrats