SUSIE GHARIB: Many investors searching for yield have been taking a fresh look at dividend-paying stocks. Tonight`s commentator, Allan Sloan, is among them. He`s senior editor at large at “Fortune” magazine.
ALLAN SLOAN, SR. EDITOR-AT-LARGE, FORTUNE: The hot investment idea for older people and retirees these days is dividend-paying stocks. At today`s insanely low rates, you can`t get meaningful income from CDs or money market funds or even five-year Treasuries. So, a stock yielding 2 or 3 percent seems like nirvana. I`ve been buying dividend stocks for a while because, as you can see, I`m sort of old, not retired, though.
But there`s one thing I watch out for though that you should, too –risk. As a stockholder, you risk not only having the price of your shares fall, but also your income. If a company runs into trouble or decides to re-allocate capital, your dividend can be cut or disappear, as holders of bank stocks discovered to their horror when the financial crisis hit. So if you go the dividend route, keep in mind that dividends aren`t guaranteed.
Diversify among companies and industries. Don`t chase the highest yield. And remember that, regardless of whether interest rate are high or low, one rule never changes: there`s no such thing as a free lunch.
I’m Allan Sloan.