Motley Fool Income Investor
Income Investor, founded in 2003, is an investment newsletter that focuses on dividend stocks. The current lead advisor is James Early. The subscription consists of a monthly newsletter, weekly email updates and access to the members-only Income Investor website and forums.
Income Investor is a long-term, buy and hold long-only service. While there is a focus on picking dividend stocks, the goal of the Income Investor team is to provide Total Return, so they are equally concerned with stock price appreciation. Income Investor invests in high quality stocks with strong balance sheets that are likely to continue paying, and ideally increasing, their dividends far into the future.
Unlike many of the other Motley Fool investor newsletters (Stock Advisor, Rule Breakers, etc.), James Early and his team provide both a stock valuation for each of their recommendations, as well as a “Buy Below” price.
Members receive the following:
- One stock pick each month, typically on the 2nd Tuesday of each month
- The “Income Investor 15”: a monthly list of their highest conviction buys (including risk ratings)
- Regular weekly email updates
- Miscellaneous updates on the Income Investor website
- A list of 5 “Buy First” stocks which they update from time to time, which are considered their best overall investment ideas for the long-term
Also unlike other Motley Fool newsletters, Income Investor limits their active recommendation list to around 50 stocks, pruning the list via sell recommendations from time to time. This avoids the issue that other newsletters can suffer from where the analysts need to cover an ever-growing list of stock recommendations, and resources become spread thin.
Income Investor still does however take a long-term approach to investing and sell recommendations do not come often.
Income Investor Performance
You can view the overall Income Investor performance on their website but as of this writing, they are outperforming the S&P by 3% overall. This performance includes dividend reinvestment. The last time I posted these stats in 2013, they were outperforming by 15%, but with the huge downturn in energy stocks at the end of 2014, their results took a tremendous hit. Note below that only 45% of their picks are outperforming the S&P. Also note that a third of their Open positions are underperforming the S&P by 20% or more.
Performance vs. the S&P
What Income Investor is Not
Motley Fool Income Investor is not an active trading service. James Early and team view their investing horizon as at least 3-5 years, and they hold stocks for the long-term. If a stock issues a bad earnings report and the stock drops 7% in the morning, you will not get an immediate notification with an update and definitely no alert to sell. You can however go to the message board for that stock, and are likely to find an update from one of the knowledgeable fellow members or one of the various other analysts assigned to keep an eye on the boards. This lack of immediate guidance has at times been a source of frustration for some members who panic when they see a stock in their portfolio taking a sizable hit. However it’s important to understand that this is not what the Income Investor service is about. It’s about long-term investing, and you should be able to stomach some rocky days.
Even in cases where the stock drops on potentially alarming news like a CEO resigning or even a rumored accounting scandal, for example, they rarely will issue a Sell or Hold recommendation that day. Their tendency is to digest and analyze the news and issue a more detailed response a day or two later.
Motley Fool Income Investor is not a portfolio service either. You do not receive any guidance on how many shares of a recommendation to buy. They also do not view their picks as being part of a holistic portfolio so if they recommend 4 pharmaceutical firms in a row, that doesn’t necessarily mean they are recommending their members go overweight on an allocation in that industry. However, they do provide a risk rating for most of their stocks, but it is up to each individual to assess how they want to build their individual portfolio.
Income Investor is a good newsletter for long-term investors who want to focus on income strategies, while still retaining some of the benefits of equity growth. With that being said, as mentioned in the Performance section, their exposure to the energy sector really tanked their overall returns since the end of 2014. Energy companies tend to offer larger dividends, so it makes sense that Income Investor would be heavily allocated to them. But it did expose a weakness of the service, and proves the value of being careful about how you allocate your own personal portfolios. So while I do still think Income Investor is a good service for find dividend paying stock ideas, use caution in how closely you follow each recommendation (FYI, this same advice holds true for a service like Rule Breakers, which focuses heavily on tech and biotech stocks). Finally, while Income Investor is predominately focused on dividend paying stocks, they are not just investing in the highest paying dividend stocks. The combination of seeking growth along with income is what makes them unique from a number of other income-oriented investment services.
Income Investor also is probably the least “Motley Fool” of the Motley Fool newsletters. Its approach is much more quantitative-based than either Stock Advisor or Rule Breakers. By that I mean it offers both valuation and buy-below guidance, and a straightforward risk rating of High, Medium, or Low. Their monthly Income Investor 15 picks are also very clearly ranked by their possible upside. And while they do consider qualitative aspects of their recommendations as well, the well-defined numbers approach will appeal to those who seek more structure in their investment guidance.
The community forums for Income Investor also have a different feel to them than other Motley Fool services. For one, there is a lot less activity than what you will see in some of the other services. You still get helpful posts from members and the analyst team, but the volume is considerably lower. Part of that is due to the fact that the official newsletters and updates provide so much good, solid information already. And part of that is, I think, due to the nature of income investing in general. People investing in dividend stocks tend to be into it for the long haul. And finally, the recommendations tend to be a lot less volatile so there is not as much price movement on a daily basis.
But the forums are still very valuable. The lower volume on the boards cuts out a lot of the noise, so the posts tend to be more helpful. There are some very knowledgeable members of the community who provide professional caliber analysis and commentary not just on individual companies but investing in general. Investors of any experience level will learn something here. In particular, if you are a novice investor, you will find many fellow members, in addition to the Motley Fool analysts, that will be happy to provide helpful and in-depth guidance and answers to your questions.
Consistent with the other Motley Fool premium subscription boards, the Income Investor forums are a very friendly and supportive environment. There are rarely any “pump and dump”-type posters like you see on other public boards, and rarely do you encounter any overly aggressive or obnoxious posts either. Any perpetrators of these offenses are usually quickly called out.
And finally, James Early is a tremendous analyst, probably one of the top 3 from all of the Motley Fool services. Him and his team do a great job and add a lot of value to the service. If he were to leave, it would detract from the newsletter.
Motley Fool Income Investor is currently available at the price of $149/year, and you can find their sign up page here. You can also sign up for a 30-day trial, during which time you will have access to the entire site, including the full archive of prior issues and updates. My suggestion, if you are interested in trying out Income Investor, is to sign up for the trial when you know you’ll have some free time to dive into all the different areas of the site.
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