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If a buy and hold strategy suits you then you need to focus on income

by , 11 April 2014

There are various types of investment strategies. But they all boil down to three different approaches: Income investing, value investing and growth investing. If buying and holding shares for a long period of time is a strategy that suits your investment style, then you need to focus on dividends. Let's take a closer look at income investing…

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What is income investing?

Income investing is synonymous with buying and holding shares for the long-term. And with kind of strategy, your main concern is dividend payments.

The move in share prices is of secondary importance. You should view this as a bonus. You need to look for companies that pay high, sustainable dividends yields.

A company that pays out solid dividends year after year is what you’re looking for. There’s no point investing in a share boasting an incredibly high dividend yield if it’s short lived.

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How to build an income focused portfolio

One of the major factors is buying enough of these shares to generate a decent income, Phil Oakley in Money Week explains.

And it’s crucial that you still apply diversification. You don’t want to focus on one sector and it slumps. It increases the risk of your portfolio and such an event could heavily dent all your dividend payers. So it’s important to buy shares across a broad range of sectors.

Once you’ve done this, if your share picks do as you anticipate, you can just let your portfolio do the work for you.

And whilst investing for dividends is the primary aim in an income strategy, you should also see capital growth over the years.

Companies that pay out sustainable high yielding dividends should see their share price rise in tandem. That’s because companies that pay good dividends need to be profitable to maintain this.

Dividends are a great barometer of a company’s health. It’s something a company can’t fake.

If you do decide to sell your shares at some point, not only will you have benefitted from the dividend payments over the years, you’ll make a tidy profit on selling the shares.

So there you have it, why if a buy and hold strategy suits you then you need to focus on income.



If a buy and hold strategy suits you then you need to focus on income
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