What is equity income investing?
Equity income is an income an investor receives from stock dividends. In detail, dividends paid are rewards distributed to shareholders from the company's net profits.
In general, equity income securities are from large companies with solid financial statements and less volatile compare to growth stocks. One can access equity income through the purchase of stock, ETFs, and Mutual Funds.
The advantage of equity income investing
Less volatile compared to the market
Gain paid dividend and capital gain
Higher risk-reward compared to fixed income
Saving in transaction costs with long-term investment
The risk of equity income investing
Equity income investing is not suitable for all investors. The investor must evaluate the risk tolerance, goal of investing, and time horizon. Equity income investing offers some limitations to investors.
Lower returns compare to growth stock
Limited risk; but not risk-free
Tax implication over dividends reinvestment
Suitable for long-term investors to obtain long-term gains.
The company could stop paying dividends or pay fewer dividends at any time (Credit risk)
The company might not be able to pay for short-term debts. (Liquidity risk)
Dividends might not keep up with the inflation rate (Inflation risk)
With the right equity income investment strategies, an investor can advantage of the market fluctuation. Many investment companies maximize their client’s gains by Active Equity Strategies, Advantage series, and iShares Core ETFs.