Upgrade Your Investments: How To Find Better Income Stocks

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Although it is easier said than done, investing some of your hard-earned money to safeguard your financial future should be on everyone’s radar.

However, to maximise the performance and value of your investments, you should only select ones that align with your financial goals, as well as the level of risk you are prepared to take and the length of time you want them in place for.

If you already have investments, and in particular stocks and shares in your portfolio, this often involves upgrading them.

In this article, we will highlight some of the best ways you can go about doing so by finding better income stocks.

Types of Investments

Before talking about income stocks, it’s worth outlining briefly what type of investments you can make.

In Australia, there are several different options available. Some of the most common ones are owning real estate (including your home), growing your superannuation and building cash investments in your bank accounts, term deposits, and other short-term, low-risk investments.

Traditionally, other options include putting money into fixed income investment bonds, managed funds and stocks and shares. However, in recent years the rise of cryptocurrencies such as Bitcoin and Ethereum have become increasingly popular ways of generating wealth.

What are Income Stocks?

Aside from owning real estate and making superannuation contributions, one of the most popular ways for Australians to grow their wealth is through income stocks.

Essentially, income stocks are shares of publicly traded companies that offer a steady income stream to investors in the form of dividends. These stocks are typically issued by companies who are in a stable financial position and have a well-established history of consistent dividend payments.

Income stocks are considered lower risk and differ from ‘growth’ stocks. The latter refers to companies that are tipped to experience significant growth in their revenue and profitability in the future. Typically, these companies reinvest their profits back into their business to fund expansion and innovation, as opposed to paying dividends to shareholders. As a result, growth stocks are often associated with higher risk but also potentially higher returns.

Although they are not entirely risk free, income stocks are less volatile than growth stocks. This makes them popular among investors like retirees who want to achieve a steady and reliable income stream.

Income Stocks vs. Value Stocks vs. Growth Stocks

When building their portfolio with stocks, investors can choose between three different types – income stocks, value stocks, and growth stocks. Each of which has its own merits and level of risks.

As mentioned before, income stocks are the stocks of companies that pay regular dividends to shareholders. These companies are usually favoured by investors who are looking for a reliable source of income from their investments, such as retirees.

By contrast, value stocks are the stocks of companies that are considered to be undervalued by the market. These companies may have a low price-to-earnings (P/E) ratio or some other metrics that suggest they are trading at a discounted rate to their intrinsic value.

Value stocks are often associated with companies that are in mature industries, have consistent earnings, and pay dividends. Investors who are looking for long-term growth potential may consider value stocks as part of their investment strategy.

Both of these differ from growth stocks which are the stocks of companies that are expected to grow at a faster rate than the overall market average. These companies often reinvest their earnings into research and development, marketing, and other initiatives to fuel further growth.

Growth stocks tend to be associated with companies that are in emerging industries, such as technology or biotech, where there is a high degree of innovation and disruption. Investors who are willing to take on higher levels of risk may consider growth stocks as part of their investment strategy, as the financial rewards can be quite high.

Who Should Invest in Income Stocks?

As income stocks are designed to provide a steady stream of income for investors, they are suitable to a specific type of investor who want a reliable source of regular cash flow with as little risk as possible.

Often this includes retirees or people nearing retirement age who want a dependable source of payments when they stop working. As they sometimes have to rely on their savings to cover their expenses, income stocks can be a good way of supplementing superannuation and other retirement revenue.

As well as retirees, income stocks are also a good option for conservative investors who want predictable and expected income streams, as well as long term investors – in particular young people – who are looking to build long-term wealth.

By reinvesting the dividends paid by income stocks, investors can compound their returns over time, which can result in significant long term gains over a period of 10, 20 or 30 years plus.

How Much of Your Portfolio Should Be Income Stocks?

A good question to ask yourself is how much of your portfolio should be invested in income stocks.

Essentially, there is no one-size-fits-all answer to this question, as it depends on your investment goals, as well as your risk tolerance, and overall investment strategy.

However, there are some general guidelines that investors may consider when determining how much of their portfolio should be allocated to income stocks.

For instance, if you are young and have a longer investment horizon, you may be able to allocate a smaller percentage of your portfolio to income stocks, as you have more time to benefit from the compounding effect of reinvested dividends. However, if you are closer to retirement and will need to rely on your portfolio for income, you may want to allocate a larger percentage of your portfolio to income stocks.

Similarly, as income stocks are generally considered to be less risky than growth stocks, they tend to be more stable and offer a predictable stream of income. Therefore, if you have a low risk tolerance, you may have the confidence to allocate a larger percentage of your portfolio to income stocks.

Another crucial determining factor is your investment goals. If your primary goal is to generate income, you may want to allocate a larger percentage of your portfolio to income stocks. However, if your goal is to achieve long-term and substantial capital growth, you may prefer to allocate a smaller percentage of your portfolio to income stocks and focus more on growth stocks.

Top 20 Income Stocks for Passive Income

If you are looking to make a passive income via income stocks, here are the S&P 500’s top 20 highest-dividend stocks, according to Nerd Wallet, ordered by annual dividend yield.

  1. Pioneer Natural Resources Co (PXD) – 10.94%
  2. Altria Group Inc (MO) – 7.96%
  3. Verizon Communications Inc (VZ) – 6.52%
  4. Kinder Morgan Inc-DE (KMI) – 6.05%
  5. AT&T Inc (T) – 5.7%
  6. ONEOK Inc (OKE) – 5.46%
  7. Walgreens Boots Alliance Inc (WBA) – 5.36%
  8. Philip Morris International Inc (PM) – 4.96%
  9. Prudential Financial Inc (PRU) – 4.85%
  10. International Paper Co (IP) – 4.79%
  11. LyondellBasell Industries NV (LYB) – 4.79%
  12. Hasbro Inc (HAS) – 4.77%
  13. DOW Inc (Dow) – 4.74%
  14. Pinnacle West Capital Corp (PNW) – 4.63%
  15. Newmont Goldcorp Corp (NEM) – 4.59%
  16. VF Corp (VFC) – 4.57%
  17. Dominion Energy Inc (D) – 4.48%
  18. Ford Motor Co (F) – 4.47%
  19. Amcor PLC (AMCR) – 4.32%
  20. Truist Financial Corp (TFC) – 4.26%

How to Evaluate an Income Stock?

Before determining whether an income stock is a good investment for your portfolio, it is worth doing your due diligence.

This should involve evaluating several key metrics and factors, including the following:

Dividend yield: This is the percentage of the stock’s current price that is paid out in dividends every year. A high dividend yield may indicate that the stock is undervalued or that the company is paying out a larger percentage of its earnings in dividends.

Dividend growth rate: The rate at which the company’s dividend payout has been increasing over time. If this rate has consistently grown over the years, it can be a good indicator of the company’s financial health and stability.

Payout ratio: The percentage of the company’s earnings that are paid out in dividends.

Financial health: It’s important to evaluate the company’s overall financial health, including its revenue growth, earnings growth, debt levels, and cash flow. A company with strong financials is more likely to be able to maintain its dividend payments over time.

Industry trends: Be sure to look at industry trends and factors as well, which may impact the company’s future performance. This could include changes in interest rates, regulation, or increased competition.

Valuation: You should also evaluate the stock’s valuation to determine if it is a good value relative to its earnings, growth prospects, and dividend payments. Look at the company’s price-to-earnings (P/E) ratio, price-to-book (P/B) ratio, and other valuation metrics to try and determine whether the stock is overvalued or undervalued.

By considering these factors, you will have a better idea if a particular income stock is a good investment for your portfolio.

How to Upgrade Your Investments?

If you already have income stocks and you want to upgrade your investments to provide you with better returns, here are some steps you can take to increase your chances of success:

Conduct research: Start by conducting thorough research on the stock market, companies and industries that interest you. You can use various online tools and resources such as stock screeners, market analysis reports and financial news websites to get valuable insights. Take a look at ASR Wealth Advisers for professional advice on your investment portfolio.

Look for high dividend yield stocks: The dividend yield is the annual dividend payment divided by the current stock price. A higher dividend yield indicates a higher income return and thus may be more attractive to income investors. However, it is important to note that a high dividend yield alone is not enough to indicate the quality of the company or its financial performance.

Consider the company’s financial health: Analyse the company’s financial statements, including its cash flow, debt levels, and profitability ratios. Strong financials and a healthy balance sheet are signs of a well-managed company with the ability to pay dividends over time.

Look for companies with a history of consistent dividend payments: Consistency in dividend payments is a sign of a stable and reliable income stock. Look for companies with a track record of regular and consistent dividend payments, preferably over several years.

Diversify your portfolio: It is important not to put all your eggs in one basket. Therefore, you should diversify your income stock portfolio to reduce risk and improve returns. By spreading your investments across various sectors and industries, you will minimise the impact of any one company’s performance on your overall income.

Consider tax implications: Taxation is an important consideration when investing in Australia. Research the tax implications of different investment options and consider seeking the advice of a financial advisor or tax professional.

Seek professional advice: If you are unsure about investing in income stocks, seek the advice of a financial advisor, investment firms or companies like Halo Technologies. They can help you build a diversified income stock portfolio and develop an investment strategy that provides you with lower risk and a higher level of return.


At the end of the day, we all want to build a nest egg, and income shares are a great way to do that.

However, it is important to note that not all shares are created equally. So, when it comes to generating dividend income, it is worth investing the time upfront in establishing which ones provide the most attractive proposition.

If you follow the steps outlined above, it will give you a much better chance to achieve your overall financial objectives.

I'm Allison Dunn,

Your Business Executive Coach

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