facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog search brokercheck brokercheck Play Pause
Here's How to Get More Income in a Low Interest Rate World Thumbnail

Here's How to Get More Income in a Low Interest Rate World

Where do you find income in a low interest rate world? Dividend-paying stocks is one place to look.

In today's episode we discuss ramping up your income by owning dividend-paying stocks. And shockingly, many stocks pay higher dividends than 10-year U.S. Government securities.

Listen to the Episode

Simply "click" or "tap" on the "play" icon in the image below to listen to the episode. If you'd like to subscribe to the podcast using an Apple product (iPhone, iPad, iPod touch) click here to learn how. If you use an Android phone, we recommend using the Podcast Addict App, which can be downloaded here.

Episode Overview

It's hard to find places to get a decent return on your money. Around the globe, there is now $13 trillion of negative-yielding government debt, according to Bank of America Merrill Lynch.

Even in Italy, a country with massive banking problems, more than $1.5 trillion in government debt has a negative interest rate.

In an earlier blog post, we discussed the problems caused by negative interest rates. Yet, since that blog post came out just two months ago, we've added another $3 trillion to the negative-yielding pile.

Fortunately, there are other ways besides government securities to get a return on your invested money. And today we'll explore one of them--owning dividend-paying stocks.

Download the Transcript Here

Five Insights on Dividend-Paying Stocks

1. A broad-based basket of U.S. stocks pays a dividend of approximately 2.1% right now. 

While the 10-year U.S. government note pays about 1.5% interest as of this writing, a basket of 500 of the largest U.S. stocks yields just over 2%. Now, there is a difference in risk between these two types of securities. The government note is generally considered very safe and is backed by the full faith and credit of the United States. When you own a stock that pays a dividend, the stock price can go up or down and the dividend can be raised or lowered by the company.

2. One goal of investing is to preserve your purchasing power over time. 

The goal of somebody with a 30-year retirement is to essentially preserve their purchasing power so it's not eaten away by inflation. Preserving that is increasingly important because people are living longer. Traditional bonds and CDs pay fixed rates of interest that don't necessarily keep up with inflation. Dividend-paying stocks, on the other hand, have historically shown some ability to increase over time, which helps protect your assets against the ravages of inflation.

3. Dividends have historically grown faster than inflation. 

In 1980, the S&P 500, a broad-based index of 500 large U.S. stocks, paid about $6 in dividends. In 2015, the index paid over $43 in dividends, according to the Stern School at New York University. In other words, if you owned 1 share of the index over that period of time, your dividends would have grown by a factor of 7. By contrast, inflation grew over that period by a factor of about 3. Although past performance is no guarantee of future results and you cannot invest directly in an index, dividends have historically been a good hedge against inflation.

4. In addition to dividend income, stocks may also add to your wealth through price appreciation.

Using the same example as above, the price of the S&P 500 index rose from about 115 in mid-1980 to about 2100 today. That's about an 18-fold increase. So, combine the dividend increase with the price appreciation and you have a pretty nice return that significantly outpaces inflation over that period. Again, past performance is no guarantee of future results.

5. You can take dividends as income, or, you can reinvest your dividends and buy more stocks.

If you need the income, you can simply get a check every month or quarter from the dividends on your investments. On the other hand, you can reinvest your dividends by taking that money and having it automatically buy more stocks. Historically, reinvesting your dividends on the S&P 500 index has accounted for a substantial portion of the total return of the index. Reinvesting your dividends is like an automatic savings program. If you don't need the income, it's often a good idea to do this.

Bill Keen on dividend-paying stocks...

Don't just look at what pays the highest dividend. You also have to judge whether you think that dividend is sustainable.

Please share this page and the podcast with your friends and colleagues via Linkedin, Twitter and Facebook. You can use the share buttons. Thanks!

Got a question or comment? Email it to me and we'll get back to you or call our office at (913) 624-1841. 

About Bill

Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.

KWMG, LLC’s dba Keen Wealth Advisors (“company”) is an SEC Registered Investment Advisor located in Overland Park, KS. The company and its representatives may only conduct business in those states where registered or where excluded/exempt or from licensure. For registration information please contact the SEC or the state securities regulators for the states where the company is notice filed. A copy of the company ADV is available upon request. Advisory services are only offered to clients or prospective clients where the company and its representatives are properly licensed or exempt from licensure. No advice may be rendered by the company unless a client service agreement is in place. This information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy and is for illustrative purposes only. Clients and prospective clients must consider all relevant risk factors involved with each strategy, including costs or fees, and their own personal financial situations before trading.

The views outlined in the book, Keen on Retirement Engineering the Second Half of Your Life, are those of the author and should not be construed as individualized or personalized investment advice. Any economic and/or performance information cited is historical and not indicative of future results. Economic forecasts set forth may not develop as predicted.

The Amazon Best Seller ranking listed on marketing materials is specifically referring to Best Seller rankings for the Kindle Top 100 Paid Lists under the subcategories of: Budgeting and Financial Risk Management, based on data as of September 5, 2019. Amazon rankings although relevant on how a product is selling overall doesn’t necessarily indicate how well an item is selling among other similar items or similar item categories. Amazon may choose the most popular categories or subcategories within which an item has a high ranking to determine its best seller rankings. These rankings are updated hourly and as a result, should be expected to fluctuate as such. Keen Wealth Advisors and Amazon are not affiliated entities. For further details on Amazon rankings please visit https://www.keenwealthadvisors.com/important-disclosures.

Schedule a Complimentary 15 Minute Strategy Call

Schedule a Time