Almost half of income investors are looking to the wrong stocks and sectors, according to research commissioned by stockbrokers The Share Centre.
Vodafone, Royal Dutch Shell, HSBC, GlaxoSmithKline and United Utilities are amongst the top income producing companies in the FTSE 100 index. But the study - by YouGov among 2,000 UK stock market investors who have a portfolio size of £10,000 plus - revealed that 45 per cent of income investors don’t hold any of these stocks within their portfolio.
It also found that income investors may be looking to the wrong sectors. Forty-three per cent favour the banking sector, however banks are no longer the income producing stocks they once were. Surprisingly, one in four (26 per cent) stated that they invest in technology stocks for income, a sector predominantly geared towards growth.
Helal Miah, investment research analyst at The Share Centre, says: "Even when investing for growth the power of income investing should not be overlooked. Stocks that produce an income tend to be large mature companies that distribute a proportion of their earnings. Our top five income stock picks are United Utilities, BP, Centrica, GlaxoSmithKline and Vodafone.
"Reinvesting the dividends can lead to surprisingly positive results over the long term. For example, a £10,000 investment in BP on 24 November 1988 would have bought you 8,023 shares. Through growth in the share price, as of 25 September 2012 those shares would be worth £35,782.58. However, historically BP has paid investors a dividend income and for the same period this amounts to an extra £47,209.73."
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