Investing for income
INTEREST rates and capital growth are both sitting at historic lows.
Investors should be looking at all options to generate steady income out of investments to achieve a higher rate of return than what is available in cash.
Dividends from direct equities or shares have long been a favourite of income focused investors.
Some may think a company paying dividends is slow growing one with nothing better to do with its cash but investors usually end up getting a better return from dividend investing stocks.
While many investors may be drawn to a high dividend paying stock they still must be careful when making investment choices, particularly in an environment marked by slow economic growth.
After all, the dividend is only as good as the company that can afford to pay it.
The best way to generate yield and at the same time layer on some protection is to go with companies which have enough cash flow to sustain their dividend, have consistently raised it and have signalled dividends will continue regularly.
Another consideration for accessing an income based investment return is to utilise one of the many managed fund options.
With a lower allocation to equities and incorporating some exposure to fixed interest and cash investments, these funds aim to spread the risk across asset classes.
Investors who go with a diversified fund which includes a mix of different assets across a broad array of asset classes will be better able to ride out the storm than investing in a single dividend paying stock or a fund focused in only one area.