The case for equity income investing
July 2010
With authorities around the world seeking in the aftermath of the global credit crisis to repair defective credit markets and to support economies, the rates of income payable on most asset classes have changed significantly. Most obviously, interest rates and the levels of income payable on government bonds have fallen precipitously. Near-term changes in asset prices are uncertain, but in this paper we consider the longer-term attractions of harnessing income from investing in equities.
The case for an income-focused approach to equity investing is essentially twofold:
- First, equity income (whether required or not) forms an essential component of an investor's long-term total return
- Secondly, by concentrating on income-bearing shares, investors benefit from a number of qualities that issuers of those shares tend to demonstrate. 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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