The Three Pillars of Income Investing

Income investors often become fixated on dividend yields as the only source of income from stocks. While dividends are a major component of stock market yields, companies have several other ways to provide investors income. Let’s take a closer look at each of these three ways income investors should understand.

1. Share Buy Backs

A share buyback occurs when a company decides to repurchase its own shares. This action reduces the amount of shares outstanding thereby increasing the value of the shares remaining on the market. An example of a massive stock share buyback program is Apple’s (AAPL). Apple initiated a $10 billion dollar share buyback program in 2012. Income investors who purchased shares due to this announcement have profited handsomely.

2. Dividends

Dividends are the traditional way companies return wealth to shareholders. The key to dividend investing is locating companies that have been steadily increasing their dividends over the years. In addition to increasing dividends, make certain the company is a leader in its field. This helps assure that the dividend stream will continue. Finally, check the price chart. Try to avoid stocks whose price is in a downtrend when looking for dividend producing stocks. A dropping price equals an advancing yield. These so called dividend traps have caught many unaware investors.

3. Debt reduction

I can hear you now, how does corporate debt reduction help me? Well, as corporate debt is reduced it increased the value of the company. It’s simple accounting. As the value of the company increases, this in turn, pushes the share price higher lifting investor’s bottom line. Look for companies that are reducing their debt in your search for income

Source: http://tradingtips.com/daily/dividend-stocks/three-pillars-income-investing/