Income Stocks Definition

Income stocks are notable for their high dividend payments.

Investors purchase stocks to improve their respective standards of living and create long-term wealth. Earning investment income is a part of this process. Identify the risk-return trade-off of income stocks before making financial decisions.

Identification

Income stocks offer relatively high dividend yields in comparison to the overall stock market. Taken as a percentage, divide a stock's expected annual dividend by its current share price to calculate dividend yield.

Features

You must buy and hold shares before and through their ex-dividend date in order to receive dividends on the payable date. The payable date is generally one month after income stocks go ex-dividend. Corporate investors relations departments issue press releases pertaining to these important dates.

Considerations

Income stocks are generally mature companies that operate within established industries, such as oil and utilities. Because of their relatively limited opportunities for growth, investors prefer profits to be returned to shareholders as dividends.

Misconceptions

Unlike bond interest payments, dividends are not tax-deductible expenses for corporations.

Warning

Income stocks introduce opportunity cost risks, which refer to foregone profits associated with competing investments. Growth stocks are associated with corporations that reinvest most profits back into the business and generate strong capital gains for long-term shareholders.

References

• Investopedia: Dividend Yield
• Investopedia: Dividend
• Investopedia: Ex-Dividend
• Investopedia: Income Stock

Resources

• Investopedia: Stocks