Income Investing
In short
Prioritizing regular income from dividends and interest over capital appreciation
Income investors focus on stocks that pay regular dividends and bonds that pay interest. Instead of waiting for a stock to rise, you collect cash payments. Useful for retirees who need regular income from their portfolio.
Income investing targets dividend-paying stocks, REITs, bonds, and preferred shares to generate regular cash flow. Focus metrics: dividend yield, dividend growth rate, payout ratio, and interest coverage. High-yield stocks carry dividend cut risk; dividend growth stocks offer inflation protection.
Related concepts
- Dividend Yield — If a stock trades at $100 and pays $3 a year in dividends, the yield is 3% — similar to the interest rate on a savings account, but for a stock. Because yield is dividends divided by price, it also rises whenever the stock price falls, even if the dividend itself hasn't grown at all.
- Value Investing — Value investors hunt for companies the market has mispriced — cheap relative to their true worth. Like finding a $100 bill selling for $70. The strategy requires patience: sometimes the market stays wrong for years.
- Passive Investing — Passive investing means buying index funds and holding them forever. No stock picking, no market timing. You get exactly what the market returns, minus tiny fees. Research consistently shows it beats most active strategies over the long run.
- Free Cash Flow Yield — If a company is worth $1B on the stock market and generates $80M in free cash over the year, its FCF yield is 8%. Think of it as the 'real' earnings yield — built on actual cash the business throws off, rather than accounting profits that can include non-cash items.