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What Are Income Stocks?

There are typically two types of investors, the first type consists of investors that are typically younger and plan to build wealth for their goals including retirement. The other type is those near or in retirement that are looking to generate money that pays a portion of their expenses or provides a steady income stream.

Income stocks are utilized by the latter. They pay reliable dividends to their shareholders that are dispersed in cash at regular intervals.

How Do Income Stocks Work?

Income stocks provide investors with a relatively steady flow of revenue. As long as the companies are generating a cash flow, they have the means to pay dividends to their investors on a quarterly or annual basis.

Although investors are not guaranteed the income, many companies that sell income stocks have a history of paying and even increasing their dividend distributions.

What Are the Common Characteristics of Income Stocks?

Income stocks have many characteristics that make them appealing to investors. While income stocks are not always defensive stocks, many of them do fit into this category.

Defensive stocks are stocks in companies that are not impacted by economic highs and lows. They sell goods and services that perform well no matter what shape the economy is in.

Low Volatility

As mentioned above, most income stocks fall into the defensive stock (non-cyclical stock) category. Because of this, they are not greatly impacted by the fluctuations of the economy. They are less risky and less volatile than other stock options.

High Dividend Yields

Income stocks provide a high dividend yield, which is why they appeal to investors at or nearing retirement. The companies that have income stocks do not reinvest their profits. Instead, maximum profit distributions are made to the shareholders through dividend payments.

Modest Growth Yield

Companies that issue income stocks have modest growth yield. They have stable profits over time and are considered good companies.

Who Views Income Stocks Most Desirable?

We have already explored the reasons why those at or near retirement find income stocks appealing, but income stocks are also great for conservative investors.

Risk averse investors want to protect their capital while still growing their wealth. Income stocks provide steady streams of revenue that are less volatile than other stock options but allow for a modest level of growth.

Examples of Income Stocks

There are numerous examples of income stocks that have been successful over the years. These are all companies that have had their prices continue to increase while still paying out dividend yields.


The first example is Walmart (NYSE: WMT). This Arkansas-based retail giant has seen exponential growth over the last thirty years. Its dividend yield peaked in 2015 at 3.32%, but the retailer is still holding strong even in the face of e-commerce businesses like Amazon.

Waste Management

Waste Management (NYSE: WM) is a waste collection, disposal, and recycling provider. In fact, it is the largest company of its type in North America. Over the last 18 years, Waste Management has consistently increased its dividend payout.

Verizon Communications

Another household name makes the list as an excellent income stock. Verizon Communications (NYSE: VZ) serves over 120 million wireless customers who provide the company with a reliable stream of revenue.

With all the available cash, the company has been able to provide its investors with billions in dividend payouts. Over the last 14 years, the telecom giant has increased its dividend, currently shares receive a sizable dividend yield of 4.6%.


Last but not least, Microsoft (NASDAQ: MSFT) makes the list as a fantastic income stock. Over the last few decades, the leader in the technology industry has continued to generate reliable revenue. Its investors enjoy increasing dividends based on the company’s dependability and popularity.

Advantages of Income Stocks

Income stocks are stable, reliable stocks that provide a high dividend yield. In comparison to other stocks, they are less volatile making them a less risky investment. Most of the companies that offer income stocks are in good financial situations, having stable profits and recurring regular dividends.

Disadvantages of Income Stocks

But with all the great advantages, income stocks do have a few pitfalls. The biggest problem investors see with income stocks is that they avoid long-term growth of the company because profits are not reinvested back into it. Another criticism is that income stocks tend to be more expensive than other stocks, and dividend income is taxable.

Difference between Income Stocks, Blue Chip Stocks, and Growth Stocks

Income stocks, blue chip stocks, and growth stocks all have pros and cons to utilizing them within your portfolio. While none are inherently wrong, they might be the wrong option based on your investment goals and current life status. Work with your financial advisor to see what mix of stock they suggest.

Income vs Growth

If you are a conservative investor or nearing retirement, income stocks may be the most desirable way to go. The dividend income may be exactly what you are looking for. However, if you prefer to grow your wealth in a slightly higher risk option, you can utilize growth stocks.

This type of stock does not pay dividends. Instead, the company reinvests its profits to continue to expand. This can help you see significant gains within your portfolio. But it comes with a risk. You rely completely upon the company’s success to improve your investment. If share prices drop, your portfolio might as well.

Income vs Blue Chip

Income stocks are typically found within established companies. Blue chip stocks also have a reputation of success with offering a reliable profit within established companies. Names like The Walt Disney Company, IBM, and Coca Cola are all examples of blue chip stocks.

Because these names are well known and quite large, blue chip stocks are popular with investors. That being said, blue chip stocks have less potential for high growth because they are so well established.

Understand Advantages and Limitations Before Investing

While income stocks may seem like a great way to receive high dividend yields, they might not be the best suited option for you. Understanding their advantages and limitations, while assessing your life stage and goals, can help you determine if you should utilize income stocks within your portfolio.

The best way to help create a portfolio that works for you is to work with a financial advisor. They will guide you to the best solutions to improve your wealth and help you utilize income stocks as you near retirement.