Finding safe investments during a recession can be confusing, stressful, and very time consuming. Interest rates are typically low in recessionary times, which means that many traditional high yield investments don't offer any type of return that is noteworthy. High yield savings accounts, certificates of deposits, checking accounts, and other low risk investments all offer extremely low returns in tough economic times.
So where can an investor turn to find the best high yield investment during recessionary times as well as periods of strong economic growth? While certificates of deposit and high yield savings accounts offer some of the lowest risk investments available, the yield is just not competitive. There is another investment option however that can provide a long term return that can change an investors financial situation.
Investing in Stocks that Pay Dividends
Investing in stocks that pay dividends can provide a steady stream of income during any bear or bull market. Provided an investor does their homework, they can identify some of the best high yield investments available. On top of that, blue chip dividend paying stocks also provide an opportunity to earn capital gains as well as dividend income.
Buying the highest dividend stocks does not necessarily mean an investor will get the best return available. Blindly choosing double digit yielding stocks, for example, can actually lose an investor money. There are several characteristics that can define the best high yield investment when it comes to stocks.
3 Characteristics of the Best High Yield Investment
Here are 3 important characteristics to remember when an investor looks for the best high yield investment stocks.
Strong Dividend History - The best high yield investment will have a strong history of maintaining or raising their dividends. Any company that has frozen their dividends for more than 4 quarters or have lowered them should be avoided until further analysis can be completed.
Moderate Dividend Yield - While a double digit dividend yield is hard to pass up, the more secure investment should offer a return between 2% and 6%. Anything above 6% is hard to maintain and yields below 2% are not as competitive as other investments.
Low Dividend Payout Ratio - Make sure the company does not payout over 50% of their earnings in dividends. A company that pays out more will have a difficult growing their business which will eventually impact the dividend yield.
Finding the best high yield investment does not have to be that difficult. Certificates of deposit and high yield savings accounts can be great investments when interest rates are high. However, when the rates drop, so does the high returns. Investing in the best dividend paying stocks can actually provide great returns during any economy. These investments provide capital gains as well as income which provide two options for a strong return on investment.