The case for equity income investing
March 2012
In this paper, we consider the long-term attractions of harnessing income from investing in equities. We explain why believe the case for equity income investing is highly durable, and why we think it will be strengthened by the low returns and high volatility that, in our opinion, are likely to characterise the future investment landscape.
The case for an income-focused approach to equity investing is, we believe, essentially twofold:
. First, equity income (whether required or not) forms an essential component of an investor's long-term total return3
. Secondly, by concentrating on income-bearing shares, we contend that investors benefit from a number of qualities that issuers of those shares tend to demonstrate, such as the alignment of a company's interests with those of its shareholders. In addition, dividend yield can be used as an aid to timing purchases (when the yield on a stock rises and the price falls) and sales (when the yield on a stock falls and the price rises).
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The case for equity income investing
3 Source: Credit Suisse, Global Investment Returns Yearbook, (2011) and Elroy Dimson, Paul Marsh and Mike Staunton, Triumph of the optimists: 101 Years of Global Investment Returns, (Princeton University Press, 2002), with updates from the authors; February 2012. Copyright © 2011 Elroy Dimson, Paul Marsh and Mike Staunton. Past performance is not a guide to future performance.
