Earlier this week, Federal Reserve Chairman Ben Bernanke announced that that the U.S. will keep interest rates at zero through 2014.
Yields on conventional "safe" income investments such as CDs, money market savings accounts and U.S. Treasuries will now remain at historically low levels for another three years.
While Bernanke didn't explicitly tell investors to buy dividend stocks, the message is clear: investors who want to earn a decent income need to turn to alternative income investments.
You see, Ben Bernanke and the Federal Reserve are unfortunately hell-bent on keeping interest rates at zero in hopes of jumpstarting the sluggish U.S. economy.
The Fed hopes that low interest rates will encourage borrowing by businesses and consumers, encourage capital spending, and result in greater economic activity. This has been their same goal since lowering interest rates to 0% in late 2008 in the wake of the housing bust and credit crisis.
While the positive effects of this policy have yet to be realized, there is certainly a very negative implication that is often overlooked.
This reckless policy penalizes investors who have worked hard, saved money and have accumulated wealth through their hard work. For those who are retired – or hoping to retire in the next few years – this policy is downright damaging.
I believe that those who have saved their income and built up a nest egg rightfully deserve a healthy investment income in retirement. Unfortunately, through at least 2014, they won't get a decent yield from conventional "safe" income investments.
Yields of just 0.25% on CDs and a measly 2% on the 10-year U.S. Treasury aren't producing any meaningful income. This is especially true when you consider that the income from these investments won't even keep pace with inflation at 2-3% per year.
Income investors must turn to high-yield dividend stocks as an alternative to conventional "safe" income investments such as CDs, money market accounts and U.S. Treasuries. Even after an outstanding performance in 2011, high-yield dividend stocks remain far more attractive than their low-yield alternatives.
There are numerous high-quality, blue-chip American companies that offer investors yields that are far superior to the yield on the 10-year Treasury. In fact, the 10 highest yielding stocks in the Dow Jones Industrial Average sport yields ranging from 3% to nearly 6%. Plus, these stocks offer investors the upside potential that is possible from a rise in the share price.
These are the days for high-yield investments and dividend stocks. Income investors who are starved for decent returns must seek out alternatives. With Daily Profit, you can continue to look forward to receiving our insights into safe income investment strategies and specific stocks that pay a healthy yield and offer real upside potential.
Editor, Daily Profit