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Maximize Income with Quality Investments: A Morningstar Strategy

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  Published in Stocks and Investing on Tuesday, January 6th 2026 at 22:31 GMT by CNBC

Credit quality: Look for securities with high credit ratings from reputable agencies such as Moody's or Standard & Poor's. This reduces the risk of default and ensures that investors receive their regular income payments. 2. Yield: Focus on securities with attractive yields that are consistent with the investor's risk tolerance. Morningstar suggests that investors consider the yield in relation to the security's credit quality and market conditions. 3. Dividend history: For stocks, consider companies with a history of consistent dividend payments. This indicates a company's financial stability and commitment to returning value to shareholders. 4. Financial health: Evaluate the financial health of the issuer, including factors such as leverage, cash flow, and profitability.

Morningstar's research suggests that this strategy can be effective across various asset classes, including:

1. High-yield bonds: These bonds offer higher yields to compensate for the higher credit risk. However, by focusing on high-quality issuers with a stable financial position, investors can minimize the risk of default.
2. Dividend-paying stocks: Stocks with a history of consistent dividend payments can provide a regular income stream. Morningstar suggests that investors consider stocks with a high dividend yield and a stable financial position.
3. Preferred stocks: Preferred stocks offer a higher yield than traditional bonds and can provide a regular income stream. However, investors should carefully evaluate the credit quality of the issuer and the terms of the preferred stock.

To illustrate the effectiveness of this strategy, Morningstar provides an example of a portfolio that combines high-quality bonds and dividend-paying stocks. The portfolio consists of:

1. Investment-grade bonds: 40% of the portfolio is allocated to high-quality bonds with a credit rating of BBB or higher.
2. High-yield bonds: 30% of the portfolio is allocated to high-yield bonds with a credit rating of BB or higher.
3. Dividend-paying stocks: 30% of the portfolio is allocated to dividend-paying stocks with a history of consistent dividend payments.

According to Morningstar, this portfolio has historically provided a higher yield than a traditional bond portfolio while minimizing the risk of default. The portfolio has also outperformed a benchmark index over the long term.

In conclusion, Morningstar's research suggests that income investors can benefit from a strategy that focuses on quality and yield. By selecting high-quality bonds or dividend-paying stocks with attractive yields, investors can generate a regular income stream while minimizing the risk of default. This approach can be effective across various asset classes and can provide a higher yield than traditional bond portfolios. As always, investors should carefully evaluate their investment options and consider their individual financial goals and risk tolerance before making any investment decisions.

For additional information, readers can refer to the following resources:

• Morningstar's article on yield enhancement: [link to Morningstar article]
• CNBC's article on income investing: [link to CNBC article]
• Investment products and services offered by Morningstar: [link to Morningstar website]

By following this strategy and staying informed, income investors can make more informed investment decisions and achieve their long-term financial goals.