Growth and income is a kind of stock mutual fund that combines both growth stocks and income stocks.
A growth and income fund combines attributes of volatile, high-growth companies and steadier stocks that pay a dividend.
The idea is to create a higher total return without accepting much higher risk.
A growth and income investment explores two specific areas of investing.
Growth is capital appreciation, a company’s ability to increase sales and revenue.
Companies that are in growth mode typically pay little or no dividend. Instead, they commit that money to building shareholder value.
A company might spend more on research and development. Or, a board might choose to spend on factories or equipment.
As investors, we benefit if these choices result in an increase in the value of the company’s common stock.
Meanwhile, income takes a different path. Here, we typically have a well-established company with fairly predictable sales and revenue.
Because the company grows at a very measured pace, there is less capital appreciation. To keep shareholders engaged, these companies often issue dividends.
Issued quarterly, dividends can be taken in cash or, more commonly, are reinvested into additional shares.
Shareholders have some appreciation in the stock price but also share in the profits on a quarterly basis.
A growth and income investment will own shares of both kinds of companies. It might also include companies that are still growing but which issue small dividends.
Do not, however, confuse a growth and income investment with a balanced investment.
A balanced investment will typically involve owning fixed income (bonds). A growth and income investment typically will be comprised solely of equity (stock) investments.
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