Why investors need to search for growing income

For the last few years, investors have made off handsomely by simply buying large cap stocks with high yields like banks and Telstra. Low yielding term deposits have plunged retirees into what can only be described as an Income Recession and their cries have been heard by company boards, who have acquiesced to their demands for more income from shares by raising their company payout ratios. This will prove to be the great undoing for many retirees’ investment portfolios because the corollary of high payout ratios is low growth, and what retirees will need in a few years is not a high yield but growing income. Chasing the dream of higher income is a good thing but it cannot be achieved by focusing on high yielding stocks in companies whose payout ratios are high. Unless these companies raise fresh capital, lower the dividend or borrow money, earnings won’t grow nearly as quickly as a company that can retain profits and compound them at a satisfactory rate of return on equity. full article (VIEW LINK)


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