With the possibility of a recession looming just over the horizon, stock prices going to uncomfortable places in hand baskets, and bank interest rates almost as low, what’s an investor to do?
Well, for one thing, smart investors are turning to stocks paying high dividend yields. And we’re not talking about four percent. No sir. We’re talking seven, eight and nine percent.
However, not just any stocks will do. The investor needs to do a little homework before running out and buying equities that pay high dividends. Here are a few things to look for:
Research banks and financial institutions carefully. The debt crisis and falling incomes of many of these companies have left them struggling for cash. In addition, since dividends are cash paid out to investors, these are often the first things to be cut.
If there is a recession (and the smart money says there will be), stocks that are sensitive to economic fallout are most vulnerable. If you buy one of these stocks before they drop, you are paying a premium, which reduces your yield.
There’s a caveat to # 2 however. Often, the market is like a pendulum. If there is a market panic, which seems to be endemic nowadays, some financial stocks may go down farther than they should. That’s when the investor should come in and buy them. You get a good dividend at a discounted price.
By using a chart that reflects the 10-year price fluctuations of a particular stock, you can perceive trends. The investor is not looking for all that technical stuff, or mystical chart and complicated chart reading. Look for stocks with good dividends that have already dropped significantly.
If you find what you think is a good deal, i.e. a stock that is paying a great dividend, shows good earnings and has dropped in price, then buy some shares. Keep some money in reserve. If there is a market panic and the stock goes down, buy more shares. That way the average per-share price is lower.
Don’t be afraid of buying foreign stocks that pay good dividends. We’re in a global economy, after all. Use the same strategies you would to buy domestic stocks.
Just because a stock is paying a high dividend and looks good, read what analysts have to say about the stock. They may point out something that the company might not be disclosing, or may see situations, which could occur in the near future, that may affect the stock price or dividend.
There are plenty of places to obtain that information. Most of the major search engines like Google, MSN, Aol, Yahoo and others have money or finance sites. Stock-Anal.com is a great place to start because they offer links to many financial analysis sites.