Financial Resource

When an investor thinks about investing in the stocks, he needs to decide whether he is after capital or the income growth?

Investing for Income
Few shares are usually classified as the income stocks. There are many reasons for this.

Firstly, they provide you with a steady and predictable rate of dividend and have been doing so since last many years. These are usually solid, old and firm foundation companies where there is not much variation in their profits and turnover year after year.

These companies have fewer avenues for huge capital growth but however they provide a regular and reliable income stream to its investors. Many times these companies can be companies which provide family staples which helps in keeping their business fairly consistent irrespective of the current economic trend. These companies show constant but small growth over a long period of time but provide you with a reliable and constant dividend stream.

Growth Companies
These companies exhibit good growth but may have lesser earnings. These companies possess immense potential for growth which is recognized by the markets and for this reason their price usually exceeds the values of their shares. In their case, investors usually pay premium on the price of share only on the basis of their projected earnings for the future.

These companies usually fall in the speculative category as gold mine companies which see their share prices skyrocket when the gold prices rise significantly. The company may have been successful in locating the gold but it may take several years and millions of dollars worth of equipments before they start producing the gold.

Having the Best of Both Worlds
In this stock category, there are both immediate earnings and future prospects. In my opinion these are the best shares to hold.

The reason for this is very simple. Firstly, company has been paying good dividend as its business model is working and has contained the costs. As there exist opportunities to expand, so there is growth of the capital.

If you make careful selection after a thorough research, many companies would show good growth of dividend along with the consistent growth in capital. So total returns from these companies can be very impressive. It is quite common to have annual return rate of around 16 % or more income from capital growth and dividends. This measure is sometimes referred to as “total share holder return”.

Excellent contribution from capital growth and dividends normally would provide you with consistent rate of good returns year after year for a long period of time without any dependence on the speculative components of the share price.

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