What is Income Stock?

Income Stock is a form of security which provides regular dividends to the investors. This dividend steadily grows over time to adjust for dividend to inflation. Such stocks are mostly issued by companies with stable cash flow and well-established financial infrastructure. These companies have large market capitalisation and usually operate at a mature stage in their growth graph.

Market Capitalisation is a method employed to quantify the value of a company. The methodology uses two variables – outstanding shares of a company and the price of each share.

According to this method, there are primarily three types of companies – large-cap companies, mid-cap companies, small-cap companies. The most likely issuers of income stocks are large-cap companies. According to SEBI guidelines, the classification of companies as per market capitalisation value is demonstrated in the table below.

Large-cap companies  Above Rs. 20,000 Crore
Mid-cap companies  Within Rs. 5,000 – 20,000 Crore
Small-cap companies Below Rs. 5,000 Crore

As income stocks are mostly large cap companies, they are well established in their domains to the extent that they have amount to payout to their shareholders, as opposed to growth stocks that reinvest their profits into the expansion of business instead of disbursing dividends.

What are the Features of Income Stock?

Some key characteristics of income stocks are listed below –

  1. Regular Dividends: As mentioned, income stocks provide regular dividends on shares and increase the dividends on a regular basis to cope up with inflation. The regularity in the disbursement of dividends enhances the confidence of investors in that specific stock and encourages additional investment.
  2. Form of dividend: In most cases, dividends are paid out in the form of cash. However, in certain cases, additional shares of stocks are issued in lieu of cash.
  3. Low-risk: Income stocks entail much lower risk compared to other types of equity securities.
  4. Low-capital appreciation: Market fluctuations affect income stocks with intensity lower compared to other stocks. Therefore, the price appreciation factor is relatively limited in this case.
  5. Sensitive to interest: Income stock values are sensitive to changes in interest rates offered on fixed income securities, especially bonds. Investors readily shift to fixed income securities if they offer a higher rate of interest. This phenomenon is starkly noticed during market contractions when corporate gains decline.

Companies that enfranchise trading stocks for income, do it so for the purpose of goodwill. Allowing dividends every year along with increasing it for the sake of inflation portrays the issuer company as financially stable, thus inciting a positive sentiment amongst investors.

This rise in goodwill, in turn, encourages investors to employ their capital in the company’s stocks which strengthens their financial fortitude, allows for greater productivity and aids in sustaining economic crises and stiff competition.

One such instance is how Walmart bested online market by offering higher dividends on their income stocks. It encouraged more investors to pour in their capital for the purpose of share market income, thus providing Walmart with the financial support to survive against online market blitzkrieg, especially from Amazon.

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Who are Income Stocks Suited For? 

Investors who want to earn a regular income from the stock market as well as have a low-risk appetite can consider going for Income Stocks .Here are a few features of Income stocks that make them a good investment option for such investors.

Defensive Stocks

Income stocks are often considered as defensive stocks by investors. These stocks belong to industries that remain in business irrespective of the market condition. Food and beverage is an exemplary industry that issues defensive income stocks; others being, electricity, gas, etc.

The above mentioned goods and services are required across varying phases of market fluctuations and, therefore, such stocks are less reactive to market volatility. You can invest in such stocks to lower the risk factor in your portfolio and receive assured stock market income albeit a bearish market.

HighDividend Stocks: 

Some industries offer above-average dividends on their stocks. This scale of dividend payment is frequently seen in industries such as electricity, gas, water and the energy sectors. High share market income can also be found in the Real Estate sector which issues income stocks in the form of Real Estate Investment Trusts (REITs).

Inclusion of income stocks in your investment portfolio will allow the balance of risk and reward elements in it. Also, in the case of market contractions, it will buoy your stock market income and keep your investment capital immune to volatility to avoid losses.

What are Some Downsides Of Investing In Income Stocks?

Although income stocks offer a host of advantages, not all of them can be considered convenient for investors. While some disadvantages are inherent to all stocks of this nature, some are pertinent to particular industries or companies. A few of them are –

  • Expensive: Given their profitable nature and issuer companies with large market capitalisation, income stocks are costlier than other stocks. Therefore if investment capital is short, such stocks may not seem viable.
  • Low capital appreciation: Income stocks do not offer substantial capital appreciation. Therefore, investors who prefer trading stocks for income during market expansion will not earn considerable capital gain from such transactions.

What are Some Alternative Options to Income Stocks?

Here is a list of alternatives to income stocks:

  1. Growth Stocks: Growth stocks offer high scale capital appreciation compared to income stocks. It is ideal for investors with a high-risk appetite and dynamic investment objective.
  2. Mutual Funds: Mutual Funds, owing to their investment pooling, allows a diverse investment portfolio and professional fund management for investors. Such funds can be invested in all forms of market securities.

These are some alternative investment options you can look into; given you find income stocks inconvenient.


As mentioned above, Income stocks can prove to be a great investment avenue provided you have sufficient investment capital, want a steady income from your stock market investments and have a low risk appetite. That being said, investing in income stocks is not immune to market risks . While selecting the best income stocks of 2019, make sure you do your research thoroughly and choose companies with sound fundamentals.