5 of 11 in Series:
The Essentials of Investing in Stocks and Bonds
Investing for income means investing in stocks that will provide you with regular money payments (dividends). Income stocks may not offer stellar growth, but they’re good for a steady infusion of money. Income stocks are especially well suited for the following individuals:
Conservative and novice investors: These investors like to see a slow-but-steady approach to growing their money while getting regular dividend checks. Novice investors who want to start slowly also benefit from income stocks.
Retirees: Growth investing is best suited for long-term needs, while income investing is best suited to current needs. Retirees may want some growth in their portfolios, but they’re more concerned with regular income that can keep pace with inflation.
Dividend reinvestment plan (DRP) investors: A DRP is a program that a company may offer to allow investors to accumulate more shares of its stock without paying commissions. For those who like to compound their money with DRPs, income stocks are perfect.
If you have a low tolerance for risk or if your investment goal is anything less than long term, income stocks are your best bet.
When we talk about gaining income from stocks, we’re usually talking about dividends. A good income stock is a stock that has a higher-than-average dividend (typically 4 percent or higher) and is purchased primarily for income — not for spectacular growth potential.
A dividend is quoted as an annual number but is usually paid on a quarterly, pro-rata basis. In other words, if the stock is paying a dividend of $4, you would probably be paid $1 every quarter. If, in this example, you had 200 shares, you would be paid $800 every year (if the dividend isn’t changed during that period), or $200 per quarter.
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Source:http://www.dummies.com/how-to/content/investing-to-bring-in-monthly-income.html
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