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Highest yielding shares not the best for income generation

[VIDEO] Harbour Asset Management chief executive Andrew Bascand says that the best income producing shares to have in a portfolio aren't necessarily the highest yielding ones.

Monday, June 23rd 2014, 5:06PM

With the 30-year bull market in bonds coming to an end investors are increasingly looking for other options to generate income. One of these is the use of high-yielding shares in a portfolio.

Harbour Asset Management chief executive Andrew Bascand told the most recent SiFA conference that when selecting appropriate shares for income that the highest yielding stocks aren't necessarily the best ones to use.

He says it is important to focus on growth prospects of a stock as well as its yield. 

He says investors looking to diversify out of traditional sources of income shouldn't jump into the "highest octane" yielding shares as they have the most volatility.

"The market is uncertain about growth prospects," henece the high yield, he says.

Instead of buying the "ritzy" stocks with 10-12% yields, it is better look at companies with yields around the 8% mark.

Research shows that over the past 15 years if an investor chased just the stocks with the highest yields they wouldn't be guaranteed the highest returns.

Rather a portfolio of stocks with 6-8% yields produced the highest return with the lowest volatility.

Bascand reinforces comments made by Grovesnor Financial Services chief investment officer David Beattie about the investment merits of some of the recent corporate bond issues.

"Investors shouldn't get sucked into subordiante corporate bonds that aren't strong investment credits with yields that just aren't attractive," Bascand says.

For more on investing in shares for income; the sort of returns that can be generated and comments on the term deposit market listen to this video.

 

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