What you want to achieve
Income and dividend investing: building a reliable income stream
Dividends feel safe because they arrive as cash. But a high yield can be a warning sign as often as an opportunity.
The challenges
- High-yield shares that cut their dividends.
- Income concentrated in a few sectors such as banks, oil or utilities.
- Sacrificing growth for income and losing out to inflation.
- Confusion between bonds, income funds and dividend shares.
How a disciplined process helps
Test whether income is covered
A dividend paid from strong, recurring cash flow is more reliable than one funded by debt or asset sales. Check dividend cover and cash generation before relying on any payer.
Our guide to what works in investing covers profitability measures.
Diversify your income sources
Spread income across sectors, countries and asset types, including bonds where appropriate. One cut should not wreck your plan.
Our bonds article explains gilts, corporate bonds and bond funds.
Think total return
What matters is the combination of income and growth after costs and inflation. Sometimes selling a small part of a growing investment is a better way to raise income than buying a high-yield one.
Our withdrawal strategies article compares approaches.
Where to start
- Bonds explainedGilts vs corporate bonds vs bond funds.
- Living off your investmentsSix withdrawal strategies compared.
- Guide: What works in investingThe research behind a factor-based, rules-driven approach.
- Retirement planning articlesHow much you need and how to plan it.
Questions people ask
Is a high dividend yield good?
Not necessarily. A very high yield can signal that the market expects a cut. Check cover and cash flow.
Are dividends guaranteed?
No. Companies can reduce or cancel dividends at any time.
Should retirees only buy income investments?
Many retirees combine income and growth investments and draw on both.
Important: this page is education and information only. It is not financial advice or a personal recommendation, and it does not take your circumstances into account. The value of investments and pensions can fall as well as rise, and you may get back less than you put in. Past performance is not a reliable indicator of future results. If you are unsure what is right for you, speak to a regulated financial adviser.