What shares or other investments can give me a regular income of $10k-plus a year?

When it comes to earning an income from an asset class, you cannot consider returns, or yield, without considering risk. The scar tissue from the GFC is still visible and generally speaking income-hungry investors have become more cautious about equities. Many would prefer to earn a risk-free return in bonds of around 6%-7% but that is no longer available unfortunately, so many have come out of the woods and have reluctantly had to buy equities and take risk.

Their tendency is to gravitate to “safe” equities as bond proxies, which means that “big” income stocks get the most attention. We can debate whether “big” equals

“safe”, of course, but after the falls and volatility in the banks and Telstra over the past few years it is clear that big is not safe. Big stocks may be safer but they are not safe. For example, both Wesfarmers and Telstra have been going down and underperforming on every level. Woolworths has underperformed 33% in three years.

So I think you have to accept that there is no “safe” in equities, whether you are focused on income or not. Equities come with volatility. So if you are really income focused and have been dragged out of low-yielding asset classes such as bonds and term deposits, your focus should not be on size but on reliability of earnings and therefore dividend.

So let’s look through the stocks in the top 100 that have a yield over 6% and, on first pass, let’s eliminate stocks rather than choose them. I am going to eliminate: Telstra – no growth; NBN – uncertainty, horrible trend; Wesfarmers – sector under siege; Fortescue metals – too volatile; Aurizon – geared to resources, not reliable; Crown – earnings too volatile; Coca-Cola – horrible trend, one day it will turn but currently in the sin bin; regional banks – if you already have the banks you can pass on these, they are more volatile and need timing; Harvey Norman – too cyclical, can be traded but not an income stock.

That leaves us nine stocks: Commonwealth Bank, Westpac, ANZ, NAB, Macquarie, Suncorp, AMP, Vicinity Centres and Tabcorp. Not really enough there to diversify a conservative income portfolio, so let’s now look at the 6% yields in the next 100 stocks – let’s call them “the best of the rest”. These include smaller market cap stocks at the conservative end of the scale: a couple of REITs and a few financial stocks including fund managers Platinum Asset Management, IOOF and Perpetual.

That’s 15 big stock picks for risk-averse income investors. This list achieves an average yield of 6%, which grosses up to 7.7% including franking. On that basis to achieve a $10,000 annual income you will need to invest $167,000 equally across all of them.