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Income Stocks to Consider: Utilities and Real Estate Investment Trusts

6 of 11 in Series: The Essentials of Investing in Stocks and Bonds

Income stocks tend to be in established industries with established cash flows and less emphasis on financing or creating new products and services. When you’re ready to start your search for a great income stock, start looking at utilities and real estate trusts — two established industries with proven track records — for high-dividend stocks.

Investing in utilities as income stocks

Utilities generate a large cash flow, which includes money from income (sales of products and/or services) and other items (such as the selling of equipment, for example). This cash flow is needed to cover things such as expenses, including dividends.

Utilities are considered the most common type of income stocks, and many investors have at least one in their portfolios. Investing in your own local utility isn’t a bad idea. At least you know that when you pay your energy bill, you’re helping out at least one investor.

Putting your dollars in real estate investment trusts

Real estate investment trusts (REITs) are a special breed of stock. A REIT is an investment that has the elements of both a stock and a mutual fund (a pool of money received from investors that is managed by an investment company). It’s like a stock in that it’s a company whose stock is publicly traded on the major stock exchanges, and it has the usual features that you expect from a stock — it can be bought and sold easily through a broker, income is given to investors as dividends, and so on.

A REIT resembles a mutual fund in that it doesn’t make its money selling goods and services; it makes money by buying, selling, and managing an investment portfolio — in the case of a REIT, the portfolio is full of real estate investments. It generates revenue from rents and property leases as any landlord would. In addition, some REITs own mortgages, and they gain income from the interest.

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