Are Income Stocks Recommended?

Are Income Stocks Recommended?

I do not believe most people should buy common stocks for dividends or income. In theory, income stocks should be safer, but don't be lulled into believing they can't decline sharply.

People think utility and bank stocks are conservative and that you can just sit and hold them because you are getting your dividends.


If you do buy income stocks, don't strain to buy the highest dividend yield available. That will probably entail greater risk and lower quality. Trying to get an extra 2% or 3% yield can expose your capital to larger losses. Dividends can also be cut if they are not being adequately covered by a company's earnings per share.

If you need income, my advice is to buy the very best stocks you can find and simply withdraw 6% or 7% of your investment each year for living expenses. You could sell off a few shares and withdraw 1 1/2% per quarter. Higher rates of withdrawal are not generally advisable, since in
time they could lead to possible depletion of your principal.


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