When your investing goals are primarily focused on making immediate income, as opposed to long-term capital gains or retirement income, there are three prominent ways to buy a diversified stock income plan, or DSIP. These plans are all based upon preferred stock that offers dividends that pay regularly based on the company's profits. Some investment companies put together and offer DSIPs, but you can also choose to invest through select mutual funds that focus on dividend-producing preferred stocks, or you may wish to do the research and buy the preferred stocks individually.
Buying into a DSIP
A diversified stock income plan that is put together by a brokerage house is simply a list of preferred stocks that the broker believes will return regular dividend payments. As an investor, you can pick and choose from any stocks in the DSIP list, although most brokers would recommend diversifying the portfolio with a variety of the stocks to avoid being overly affected by individual price fluctuations. If you don't need immediate income, you can choose to reinvest the dividend income into more stock.
Mutual funds are a type of investment in which a group of investors pools their money to buy a diversified portfolio of stocks. Mutual funds are managed by portfolio managers for specific traits, such as stability or growth. Some mutual funds invest in preferred stock that pays dividends, so when the dividends are paid by the company, each investor in the fund receives a portion of the dividends dependent on his level of investment in the fund. If you invest in a mutual fund, you won't pick and choose the stocks into which you invest; you'll merely pick the fund, and the portfolio manager will make the choices of which stocks to include in the portfolio.
Buying Individual Stocks
As an income-seeking investor, if you wish to have the utmost control over your portfolio of preferred stocks, you can focus your efforts on researching and buying individual preferred stocks that meet your criteria. Some suggestions for preferred stock to consider would be in companies that have solid financials, those that offer regular dividends that have historically been paid on time, and companies in which you expect the dividend to grow in the coming years.
Companies offer dividends on preferred stock as a means of attracting investment. Each company has the choice of how often it chooses to pay out dividend earnings, whether quarterly, semi-annually, annually or even monthly. Some companies with especially profitable periods may choose to pay out additional one-time dividends that are not part of their dividend schedules. Dividend earnings are paid to preferred shareholders based on the number of shares that the investor owns, either as a cash payment or as an investment into more preferred stock.
Chris Baylor has been writing about various topics, focusing primarily on woodworking, since 2006. You can see his work in publications such as "Consumer's Digest," where he wrote the 2009 Best Buys for Power Tools and the 2013 Best Buys for Pressure Washers.