Income stocks are typically defined as companies that pay attractive dividends. As a result, some investors will employ these shares and build a portfolio focused on generating income from cash payments. Here’s how someone can start from scratch and build things up over time.

Focus on Asia

One action you can consider right now is Henderson’s income in the Far East (LSE:HFEL). The mutual fund currently has a dividend yield of 9.9% and the share price has increased by 10% in the last year.

The business (as the name suggests) focuses on investing in Asian companies with dividend potential. It then aims to distribute most of the income received in the form of dividends to shareholders. The share price should closely reflect the net asset value of the holding company. Therefore, the growth over the last year reflects the fund’s successful stock selection.

Some will criticize the recent behavior, saying that if the fund had more Asian holdings growth shares profits could have been even higher. This is true, but it defeats the purpose for which the trust was created. It is aimed at sectors such as banking and telecommunications that operate in mature areas. Instead of crazy capital growth, it focuses on high dividend areas.

Looking to the future, I think this could work. Tech company valuations are high, so exposure to more defensive sectors in the market could facilitate protect confidence scores if we do see a correction in the stock market.

Building the right portfolio

Let’s say an investor has just opened a stocks and shares ISA to get a second income. The ISA investment limit is PLN 20,000. pounds per year. For comparison, let’s assume that these 20 thousand pounds was entirely allocated to the Henderson Far East Income fund. Theoretically this could pay £1,980 in cash alone over the coming year.

However, over time, I don’t think it makes sense to put everything in one income fund. Business involves risk. For example, it is concentrated in just a few sectors and only in the Asian region. If there is a slowdown in this part of the world due to China or emerging market instability, it will be risky.

Please note that tax treatment depends on each client’s individual situation and may change in the future. The content of this article is for informational purposes only. It is not intended to be and does not constitute any form of tax advice. Readers are responsible for conducting their own due diligence and obtaining professional advice before making any investment decisions.

However, this does not mean that an ISA cannot aim to generate an average return of 9.9%. There are other companies in this region that are profitable. If an investor included other shares in the portfolio alongside Henderson Far East Income, this would diversify the risk.

After ten years of maintaining an annual investment of PLN 20,000. pounds, the portfolio can generate just over 39 thousand. pounds of income the following year. Of course, this is not guaranteed as dividends may be reduced in the future. This may mean that it will take longer to achieve a certain income goal. However, it clearly shows the potential to grow a blank ISA with the right strategy.