Income stocks are considered to be good investment options as they generate a secure ongoing stream of regular income for the duration that the stock is held. Hence, such stocks can be an excellent option for risk-averse, long-term investors.
Investors often look for quick money-making alternatives by investing in stocks and achieving fast capital appreciation through increases in share prices. However, the risks involved in the selection process – unexpected stock price declines, market selloffs and elevated tax costs on short-term investments – are often overlooked.
Why Dividend Investing?
Dividend investing is prudent as dividends are a less risky component of total return than capital appreciation. Also, dividend stocks are historically less volatile than non-dividend stocks. Moreover, they reflect a company’s solid financial structure and strong fundamentals.
Whether it’s an up market or a down market, there’s always a place for dividend investing. Here’s why: The yields on dividend stocks rise when their share prices go down. That’s an opportunity to chase extra yield. On the flip side, if the market is escalating upwards — that’s obviously good for all equities. Hence, it can be easily said that dividend-paying stocks are always appropriate for long-term investors.
However, it will be incorrect to say that dividend investing comes without any risks. In a depressed economy, the demand for high dividend-yielding stocks rise, which in turn increase their share prices and reduce the relative yield available to investors.
Moreover, when companies choose to pay out a large part of their earnings to compensate their shareholders, it leaves less money in hand for the companies to invest in the future endeavors. This, in turn, makes them less competitive than their peers.
Nonetheless, income investing will remain an important cornerstone for investors with both aggressive and conservative investment profiles as it cushions investors’ portfolio, given the low risk, diversification benefits and ready access to funds of these stocks.
How to Pick the Best Stocks?
Although the benefits of dividend investing cannot be stressed enough, one should keep in mind that not every company can keep up with its dividend paying momentum. Hence, a cautious strategy needs to be followed in order to select the best dividend stocks with potential for steady returns.
Choosing the right dividend stocks can be a daunting task as it requires careful consideration of both the past performance of the company and its prospects. If a stock has delivered strong performance in the past, but faces troubled times ahead, it definitely does not qualify as an attractive pick. We note that an impressive current-year dividend yield and a strong dividend yield history are also important for identifying strong dividend-paying stocks.
With the help of the
Zacks Stock Screener, we have zeroed in on four stocks that flaunt a Zacks Rank #2 (Buy) or better and offer a dividend yield of minimum 3%. All these stocks have a steady dividend growth rate of above 5% in the last five years and offer VGM score of ‘B’ or better. VGM score, where V stands for Value, G for Growth and M for Momentum, is a comprehensive tool that allows investors to filter through the standard scoring system and pick winning stocks. 4 Income Stocks to Bet On Big 5 Sporting Goods Corporation ( operates as a sporting goods retailer in the western United States. This Zacks Rank #1 (Strong Buy) company was founded in 1955 and is headquartered in El Segundo, CA. You can see BGFV Quick Quote BGFV - Free Report) . Key stats to note: the complete list of today’s Zacks #1 Rank stocks here Current dividend yield: 3.4% VGM Score: A 5-year historical dividend growth: 10.4% Innophos Holdings, Inc. produces performance-critical and nutritional specialty ingredients with applications in food, beverage, dietary supplements, pharmaceutical, oral care, and industrial end markets. This Zacks Rank #1 company was founded in 2004 and is headquartered in Cranbury, NJ. (Looking for the Best Stocks for 2017? Be among the first to see our Top Ten Stocks for 2017 portfolio here.) Key stats to note: Current dividend yield: 3.6% VGM Score: B 5-year historical dividend growth: 16.3% Rio Tinto plc (, a mining and metals company, finds, mines, and processes mineral resources. This Zacks Rank #1 company was founded in 1873 and is headquartered in London, the United Kingdom. Key stats to note: RIO Quick Quote RIO - Free Report)
Current dividend yield: 3.97%
VGM Score: B 5-year historical dividend growth: 9.2% The Carlyle Group LP (is an investment firm specializing in direct and fund of fund investments. The Zacks Rank #2 company was founded in 1987 and is based in Washington, District of Columbia with additional offices in 20 countries across six continents. Key stats to note: CG Quick Quote CG - Free Report)
Current dividend yield: 12.99%
VGM Score: A 5-year historical dividend growth: 29.7% Forget the gym, finding great stocks should be your New Year's resolution! Don't miss out on our new Top 10 Stocks for 2017 list, which has been hand-picked from 4,400 stocks covered by the Zacks Rank. Be one of the first to see this year's list here>>