What Is Current Income?

Current income is associated with strategies that seek to identify investments that are paying above-average distributions. Common types of current income include dividends and interest. Investment portfolios across the risk spectrum can focus on investment strategies that pay high levels of current income.

Key Takeaways

  • Current income includes dividends and interest and it’s based on an investment strategy that provides the investor with steady long-term distributions. 
  • Income paying securities include stocks, such as real estate investment trusts (REITs), but investors looking for steady long-term current income may consider annuities and target-date funds. 
  • Debt securities can also provide current income, such as government or corporate bonds.

How Current Income Works

Current income investing is a strategy that can provide investors with consistent long-term distributions or payouts for short-term spending. Many long-term current income-focused portfolios are created for individuals seeking short-term spending payouts and the potential for steady long-term income in their retirement years. 

To build out the benefits of current income investing in a portfolio, investors can choose individual securities or managed investment funds. Income paying securities can include stocks, bonds, or a combination of both.

Types of Current Income

Equity Income Fund Investing

Dividend-paying stocks offer investors higher returns, generally with higher risks than bonds. As income paying investments, the securities combine income with the chance for a higher stock price. In the equity market, investors will generally find dividend-paying stocks to be among the most well established and mature companies. Dividend-paying stocks tend to have steady earnings with reasonable payout ratios. Real estate investment trusts (REITs) are a top investment option for investors seeking current income. A REIT is required to pay 90% of its income via distributions to investors due to their fund structuring.

Funds including these securities are a great way to invest in current income. Funds can provide for lower risk through diversification with similar comparative levels of yield. Investors seeking funds for a long-term investment that will pay steady streams of current income in the future can also look to annuities and target-date funds. Annuities typically offer a consistent annuity payout following a specified target date. PIMCO’s RealPath target-date funds are some of the market leaders in return and current income in the target-date category. The PIMCO RealPath 2045 Fund has a one-year return of 14.84% as of Nov. 2019 and has a distribution yield of of3%.

Debt Income Fund Investing

Debt income securities and investment funds offer an even broader universe of choices for investors since debt instruments are synonymous with paying fixed income to investors. Investors can invest in a range of local and international government offerings. They also have access to coupon paying corporate bonds from countries around the world.

Debt income funds build on these offerings by providing diversified portfolios of income paying investments. As emerging markets become more popular, the Hartford Emerging Markets Local Debt Fund has seen its fund rise 14.9% over the last year.