How to Build an Income Based Stock Portfolio

An income producing portfolio of investments can be valuable at any stage of life, but it is especially useful for retirees who no longer have the income of a paycheck. Dividends are the chief source of income in a stock based portfolio, and there are a number of ways to reach these stock dividends.

Instructions

1. Determine need for short term liquidity. The investment made in incoming producing stocks should only be made with moneys that will not be needed for five to 10 years or more. Money that is needed in the near to intermediate term should instead be invested in more conservative investments, such as CDs and money market accounts.

2. Assess how much risk is acceptable. The highest dividend yields are associated with the riskiest stocks. Just as with any stock, a stock that produces a dividend can drop in value. Likewise, a stock may cut or cease paying a dividend.

3. Determine how much money is available to invest. For investors with a large amount of money available to invest, there are more options that there are for small investors. Specifically, larger investors may want to create portfolios of individual stocks where a smaller investor may prefer exchange traded funds (ETFs) or mutual funds.

4. Consider dividend focused ETFs and mutual funds. ETFs and mutual funds offer investments that specialize in income producing stocks. However, it is very important to research what is actually held in each ETF and mutual fund because there are several that are heavily concentrated in financial stocks and this might not provide sufficient diversification for some investors.

5. Research individual dividend producing stocks. For investors who have sufficient diversity in their portfolio, the most direct way to receive dividends is to own the stock directly. Before purchasing any stock, it is important to study the company's fundamentals, including its ability to continue pay dividends and the likelihood that dividends might increase in the future.