If the risk tolerance is high enough to venture into the asset class of equities, investors can currently realistically achieve dividend yields of 2.5% to 4%, depending on the investment region and the degree of dividend focus. Additionally, equity investors can tap other income sources and participate, at least partially, in the upside of stock markets. This does however require the ability to cope with potential capital losses.
Three potential sources of income
Dividends are an important component of total return: Over the years following the global financial crisis, companies have deleveraged and accumulated significant cash reserves. Such healthy balance sheets allow these companies to return excess cash to their shareholders e.g. in form of dividends. When selecting high dividend stocks, the portfolio management also considers quality criteria such as profitability and low financial leverage. These factors are good indicators for the respective companies' ability to sustain their dividend policies.