What are income stocks?

Income stocks are stocks that produce above-average income, usually in the form of dividends.

An income stock usually has two distinct traits. The first is a high dividend yield. You can identify income stocks by their high dividend yields (the percentage you get when you divide a company’s current yearly payment by its share price). For example, stocks with a dividend yield higher than, say, 3% would typically be attractive to an income-seeking investor. Investors should note that a very high dividend yield can also be a warning sign of trouble (such as an imminent dividend cut).

Apart from a high dividend yield, you should look for a second trait: stocks that have a long history of paying (and raising) their dividends. For a true measure of stability, focus on those companies that have maintained or raised their dividends during economic downturns or  recessions.

If you’re an income stock investor, you may wish to place more emphasis on Utilities and Canadian banks. That’s because these firms generally pay high, secure dividends, and have long histories of raising their payments, even during downturns. However, you’ll still want to make sure your portfolio is well-diversified across most if not all of the five sectors. 

We feel that income stocks have a role to play in most investors’ portfolios. For the safest investments, follow TSI Network’s three-part Successful Investor strategy:

1. Invest mainly in well-established companies;
2. Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; the Consumer sector; Finance; Utilities);
3. Downplay or avoid stocks in the broker/media limelight.

Discover how to build long-term profits with the right dividend stocks and put extra strength in your portfolio. Download our specific advice on how to identify high-quality dividend stocks when you get our report, The Best Canadian Dividend Stocks to Buy: REITS Canada and other Top Canadian Dividend Stocks FREE!