Why do income-oriented investors purchase higher-yielding stocks? For the income! So why then do they fret over the fluctuations in share price, when they should be concerned about the consistency of their income stream?
Rather than staying awake obsessing over gyrations of share prices that end up replicating one’s EKG diagram, they could be lulled to sleep by the upward trending action of an annual dividend stream that emulates a department store escalator.
Do landlords price their rental properties on a daily, weekly or monthly basis? No! Their primary concern is receiving their monthly rent check. Income-oriented equity investors can improve their chances of getting a quality “tenant” through the use of S&P Capital IQ’s Earnings & Dividend Quality Rank, which is a letter grade assigned to a stock based on a variety of factors, chief among them being the consistency of earnings and dividend growth over the prior 10 years.
The accompanying chart shows the income stream since 1999 for A+ stocks with dividend yields above 3%. Despite two deep bear markets and a two-year rate-tightening cycle, these stocks saw no declines to their rolling four-quarter income streams during this 15-year period.
So there you have it. If you are an investor who owns stock for income, think like a landlord, not a trader, and remember that owning a high quality stock just may improve the quality of your sleep.