| When the economy is struggling, the Fed lowers | | | | - Stocks: As I said earlier, some pay nothing at all, |
| interest rates to encourage investment. There are | | | | some pay great dividends. Just because a stock pays |
| two major downsides to this for consumers. | | | | high dividends, doesn't mean its a great company, the |
| 1. Inflation increases. As we have seen, the price of | | | | stock price could still decline. (Watch out Pfizer!!!) |
| many goods has increased. Economics 101- As | | | | - REITs: Real Estate Investment Trusts are vehicles |
| inflation increases, your purchasing power decreases, | | | | used to invest in, you guessed it, real estate. By law, |
| meaning you could now buy less with the same | | | | REIT's must pay out at least 90% of their profits in |
| amount of money. | | | | dividends, making them especially appealing. However, |
| 2. Lower interest rates encourage investment. If you | | | | they have tanked in recent years with the real |
| are looking to borrow money, this is a great time to | | | | estate bubble. Watch for these making a comeback |
| do so. The flip side is that if you're lending, you are | | | | now though. |
| getting a lower interest rate. And when you put | | | | - ETF's: Exchange Traded Funds are a collection of |
| money in your savings account you are doing just | | | | stocks, similiar to a mutual fund. It is a great way to |
| that, lending money to the bank. | | | | diversify holdings if you don't have a lot of money to |
| Savings accounts almost always pay very low | | | | invest. There are also some good ETF's that pay |
| interest rates. For the average person, expect tenths | | | | decent dividends. |
| of a percentage point from major banks. You could | | | | - Dividends and Dividend Yield: Dividends are specified |
| do a lot better from specialty banks such as ING or | | | | in dollars per share. So a divident of $1 will pay $1 for |
| Emigrant Direct. Even these banks have significantly | | | | every share you own. The lower the stock price the |
| lowered there rates, ING is only offering 1.75% now | | | | more shares you could buy obviously, so an |
| for accounts up to $50,000. If you have more | | | | important measure is the dividend yield. This specifies |
| money, you can do a little better with these or | | | | the dividend paid divided by the stock price. When |
| money market accounts. But the fact remains, with | | | | comparing stocks, the dividend yield will directly show |
| low interest rates and high inflation, you aren't in a | | | | you which paid a higher dividend compared to its |
| good position. | | | | stock price. |
| In comes the stock market. For newbies out there, | | | | - Dividends are paid to shareholders of record on a |
| dividends are cashflows paid to equity investors | | | | certain date. This date is called the Ex-Dividend date. |
| (shareholders) in the company. Established, profitable | | | | It is not the same as the date the dividends will be |
| companies often pay dividends to investors in return | | | | paid. And... companies are NOT required to pay |
| for their equity investments. New, high-growth or | | | | dividends. They can change their dividend at any time |
| unprofitable companies tend not to pay dividends. | | | | or simply not pay it. Although this will have |
| While I always suggest investing in a diversified | | | | repercussions on their stock price. |
| portfolio of investments for the long-term, investing | | | | Hopefully, now you can see why dividends can be a |
| in high paying dividend stocks and funds can also be a | | | | good investment strategy for saving. If you are |
| great way to save, for the short or medium term. | | | | looking to save as part of a long-term strategy, I |
| One thing to note, dividends are taxed, either as | | | | would strongly advise you reinvest dividends. This |
| income or as a qualified dividend (based on holding | | | | means you aren't paid the dividends in cash, but |
| period), so when considering the cashflow include the | | | | instead get them in stock. This additional stock |
| discount for the taxes you will pay on it. There are | | | | compounds and leads to higher dividends and more |
| tons of great stocks and funds that offer great | | | | stock ownership over time. Right now is a good time |
| dividends. Some basic info you should know: | | | | to look at dividends that can make you more than a |
| - Preferred Stocks: have first rights over assets of | | | | savings account. There are endless options of |
| the company after debtors and are more like bonds - | | | | investments with yields from 3% to 15% that may |
| some pay decent dividends. | | | | be good buys. |