Despite their risks, stocks are still one of the best income producing investments. However, the question facing investors is: What categories of stock are best at producing income? Are there particular industries or sectors that produce more income than others?
The answer to the second question is yes. There are industries in which stocks produce more income than others. The problem is that within each category there are good stocks and bad stocks. The only way to spot the money-making stocks is to evaluate each individually to see how it is actually performing. Emphasis should be placed on factors such as total cash, earnings per share (EPS), and revenue that indicate the amount of cash the company is actually producing now.
Top Income Stocks by Sector
- Technology: This is the most uneven sector in stocks today. Some high flyers, such as Google Inc. (GOOG), Amazon.com (AMZN), and Apple (AAPL) have produced astronomical stock prices. Yet weak sisters, such as Yahoo! Inc. (YHOO) and Nokia Corp. (NOK), are textbook examples of corporate basket cases.
The superstar stocks, such as Google, are priced too high for average people. A better choice for smaller investors is less fashionable companies that are flush with cash but offer lower share prices. Three standouts here are Microsoft Corp. (MSFT), eBay Inc. (EBAY), and Oracle Inc. (ORCL). At last count, Microsoft had $66.07 billion in total cash and $12.37 billion in debt on revenues of $72.36 billion. Oracle had $33.70 billion in total cash and revenues of $37.23 billion.
- Railroads: Railroads may not be sexy or fashionable, but some of them are certainly reliable income stocks these days. The Union Pacific Corporation (UNP) has seen its share price rise from $111.22 on January 23, 2012, to $134.66 on January 23, 2013. The company has also enjoyed a year to year quarterly earnings growth figure of 15.30%.
- Lesser known Kansas City Southern (KSU), the only U.S. railroad that operates a lot of track in Mexico, saw its share price rise from $66.84 on January 24, 2012, to $93.23 on January 23, 2013. Railroads have a lower cash flow and offer a lot of risk. The Kansas City Southern recorded a year to year quarter earnings growth of -9.7% and a $48.59 debt to equity rating.
- Retail: The discount area of the retail sector has attracted a lot of attention in recent years because of its ability to generate a lot of cash in a poor economy. Costco Wholesale Corporation (COST), the big name in club stores, saw its share value go from $[DP1] 81.64 on January 23, 2012, to $102.12 on January 22, 2013. At one point, December 5, 2012, Costco even hit $105.95 a share. Costco also offered a dividend of $1.10. Costco produced revenues of $101.22 billion and a quarterly year to year revenue growth of 9.60% for the past year. Not every retail favorite was a moneymaker: Family Dollar Stores Inc. (FDO) saw its share value rise to a high of $73.26 in June but fall to $55.74 by January 3, 2013. Family Dollar’s share value on January 23, 2013, ($57.97) was around $2 higher than it had been on January 23, 2012 ($55.79). The reason for this fast rise and fall of the share price was clear; Family Dollar’s revenue was just $6.6 billion compared to Costco’s $101.22 billion. Retail is a mixed bag, and not all discounters are money machines.
- Credit and Debit Cards/Electronic Payment: If one class of income stocks has been ignored in the last year, it has to be credit and debit card companies. Discover Financial Services (DFS) had revenues of $7.84 billion and a year to year quarterly revenue growth figure of 29.90%. Yet it had a share price of $39.15 on January 23, 2013. eBay Inc. (EBAY), which owns electronic payment giant PayPal, reported a quarterly year to year revenue growth figure of 18.10% and revenues of $14.07 billion. The interesting aspect to this is that PayPal and Discover have entered into an alliance to enable PayPal account holders to pay at brick and mortar stores using Discover. Like Discover, eBay Inc. also offers investors a lower share price—$53.51 on January 23, 2013—compared to MasterCard Inc.’s (MA) incredible $516.23 a share.
About the Author
Daniel G. Jennings is a professional freelance journalist and a longtime resident of Colorado. Jennings has a BA in History and an MBA. He has worked as a newspaper journalist, financial specialist, an accounts payable professional and a newspaper editor.