Income Stocks to Pad Your Portfolio
Interested in packing your portfolio with income stocks? It’s a fairly conservative approach to investing. The benefit is that this strategy leads to consistent dividends. And besides, who doesn’t like to see a steady stream of income coming into their investment account… all without ever needing to sell a single share?
So what is an income stock? To put it simply, an income stock is one that pays out a regular dividend. Dividends usually come in quarterly or monthly installments.
One of the hallmarks of a good income stock is a high dividend yield. It’s worth noting that what qualifies as a high yield can vary by sector. But in general, any stock with a yield above 3% can be considered a good income stock.
But that’s not the only factor worth considering…
One of the most profitable investments out there is staking a claim in the dividend aristocrats. For the uninitiated, these are companies that have increased dividend payouts to shareholders for at least 25 consecutive years.
This tried-and-true investment strategy is an excellent way to grow your wealth. For example, let’s look at the history of PepsiCo (Nasdaq: PEP). The soft drink specialist began paying investors a quarterly dividend in 1965. And since 2000, the quarterly dividend has climbed from $0.14 to $1.02 per share. This puts PepsiCo’s dividend yield just above 3%.
If you invested $1,000 into PepsiCo in 2000, you’d be sitting on about 52 shares. So in addition to more than tripling your investment in share price alone, you’d also now be receiving more than $200 a year in easy income… with that figure likely to increase going forward.
Setting Up Steady Cash Flow With Income Stocks
As you can see, long-term investors can accrue some serious money with income stocks. And if you find a schedule that works for you, it’s not hard to develop a plan that will deliver monthly payments into your investment account.
Here are some simple examples:
- Procter & Gamble (NYSE: PG)
- Exxon Mobil (NYSE: XOM)
- Kimberly-Clark (NYSE: KMB)
Procter & Gamble has paid a steady dividend since 1891. So it’s a pretty safe bet that the company won’t be cutting its dividend anytime soon. What’s more, Procter & Gamble has increased its dividend payout for 64 consecutive years. That makes this company not just a dividend aristocrat, but a dividend king.
For more than a century, Proctor & Gamble has been rewarding investors with steady income every January, April, July and October. And even though its dividend yield is still a humble 2.3%… the likelihood of that increasing for years to come makes it a solid income stock.
Next, let’s look at Exxon Mobil. Exxon is one of only two companies in the energy sector that qualifies as a dividend aristocrat. Nonetheless, Exxon has been steadily diversifying its portfolio for years. That’s how it’s been able to reinvest and pay dividends for so long… even when the price of oil has tumbled.
These days, Exxon is more than just a gas company. The chemical segment of its business has grown to become the leader in polyethylene plastic production. And Exxon’s production of polyethylene’s main raw material, ethylene, acts as a buffer against wavering oil prices.
And for decades, every February, May, August and November, Exxon has been sending out quarterly payments to investors. This, paired with a its strong 9.36% dividend yield, makes Exxon a no-brainer of an income stock.
Lastly, there’s Kimberly-Clark. This classic manufacturing company has 47 consecutive years of dividend growth under its belt. Every year in the months of March, June, September and December, it has issued an ever-growing dividend payout to investors. And there’s little chance that will stop any time soon. If Kimberly-Clark keeps up its annual dividend growth, it will achieve dividend king status… a crown the company will wear proudly.
As you can see, by investing in these three income stocks, it’s easy to set yourself up with a steady stream of passive income for years to come.
Another Path to Steady, Monthly Income
Searching for quarterly dividends that fill out every month of the year is just one way to go about setting up a monthly stream of income. Another way is to look for shares of a company that issue monthly payments.
While this is much less common, it’s not too difficult to find. A prime area of interest for this is a type of investment known as real estate investment trusts (REITs). These are companies that own or finance income-making real estate. REITs are a strong candidate for income stocks to own. One unique requirement REITs have is that they must pay out at least 90% of their taxable income to shareholders… and many pay out a full 100% of their taxable income to shareholders.
A good example of a REIT that pays out a monthly dividend is AGNC Investment (Nasdaq: AGNC). Shares of AGNC trade relatively cheap – so it’s a good candidate for new investors. And every month for the last 12 years, it’s sent a monthly payment out to shareholders.
Its current 9.92% yield makes AGNC even more attractive. But because it still trades cheap, monthly payments have floated in the area of $0.12 to $0.18 cents per share.
For a larger list, check out these six monthly dividend stocks.
The Bottom Line on Income Stocks
There’s a good reason so many folks take to socking away a portion of their nest egg into income stocks. They’re an almost sure-fire way to set up a consistent stream of income directed to your investment account.
What’s more, investors can supercharge their strategy by setting up a dividend reinvestment plan (DRIP). This is a simple trick that most brokerage firms are capable of. The idea is to take the dividend payment received from income stocks and reinvest it right back into additional shares. This way, each new share that’s purchased will pay out its own dividend. And when you’re ready, you can easily turn off the DRIP and resume collecting the dividend payments when you’re ready to retire. It’s a perfect way to boost your income while living on a fixed income.
If you’d like to learn more investing tricks to start building your wealth and prepare for retirement, don’t forget to sign up for the free Investment U e-letter below. It’s the perfect daily reminder to help you start building the wealth you need in order to retire early.
About Matthew Makowski
Matthew Makowski is a senior research analyst and writer at Investment U. He has been studying and writing about the markets for 20 years. Equally comfortable identifying value stocks as he is discounts in the crypto markets, Matthew began mining Bitcoin in 2011 and has since honed his focus on the cryptocurrency markets as a whole. He is a graduate of Rutgers University and lives in Colorado with his dogs Dorito and Pretzel.