With the low-interest environment currently holding still and expected to continue to hold for the foreseeable future, many investors wonder where to put their cash. Most savings accounts, money markets and CDs are all paying interest rates that mimic the low-interest standards found in treasury bills. Indeed, investors have to look hard to find yields as high as 4 percent, as the 10-year T-bill was yielding 3.54% near the end of 2009.

IN PICTURES: Eight Ways To Survive A Market Downturn

Stocks For Yield?
Though some investors are strictly bond or income investors, for a diversified investment mix it's still good to consider some stocks, even for the most conservative investor. Although income investors can and do seek higher-yielding instruments than CDs, money market accounts or T-bills - such as corporate or even high-yield junk bonds - why not consider dividend-paying stocks for income? Dividends are a time-honored way for income investors to get more yield without embracing high risk.

Utilities Still A Dividend Tradition
Utility stocks, with their slow-growth, regulated businesses, have traditionally been sought after by income investors. The traditional "widow and orphan" stocks, while perhaps not as safe or completely dull as they once were, can still be stable sources of cash flow for investors. A batch of well-managed utility companies can lend solid income to an investor's portfolio. (For related reading, see Trust In Utilities.)

A selection of high quality companies, such as electric utility Southern Co. (NYSE: SO), which was recently paying a 5.3% dividend while trading at a P/E ratio of roughly 16, can be part of a small batch of income stocks. The company operates in the Southeast and has had fairly stable earnings throughout the recession. Midwestern electric utility FirstEnergy (NYSE: FE) was paying a 4.69% dividend near the end of 2009, a yield still higher than the 30-year bond. Though its earnings are flat, First Energy has fought through the recession in the Midwest well.

Other Strong Utilities
Consolidated Edison (NYSE: ED), the large New York utility, was paying 5.2% and remains a strong company. Its stock was selling at a P/E of 15 and has reasonable growth potential. Duke Energy (NYSE: DUK), which is a multi-line utility with both gas and electric, was yielding 5.52% recently. Though growth prospects for this diversified company look flat, it's still a historically well-run outfit. Add to this a pure natural gas utility, WGL Holdings (NYSE: WGL), with its business centered in the Atlantic Coast region, and you have a decent geographical mix to invest in. WGL was paying a 4.36% dividend, traded at a multiple just over 14 and has mild growth prospects. (For related reading, check out Utility Funds: A Bright Choice In Bear And Bull Markets.)

Growth As A Kicker
With some of these stocks, the additional feature is that they have some growth potential, though that obviously isn't their main attraction for income investors. For income investors, it's a bonus. Still, these companies do target growth as well as often attempting to increase their dividend payouts. So this combination of factors, along with the relative safety and stability of these companies, as well as their lack of volatility in their stock prices, can be attractive for income investors.

Dividends - The Market's Open Secret
Income investors might also look at real estate investment trusts (REITS), which trade like a hybrid between a stock and a bond, or look at many other utility and even industrial or other stocks that pay generous dividends. Other investors, too, should consider or at least be aware of the dividend's potential value for adding significantly to long-term returns in the market. Many established well-known companies, such as McDonald's (NYSE: MCD) and AT&T (NYSE: T), are also historically good dividend payers. And when one of these companies combines its dividend return with strong earnings growth, investors often get a surprisingly good one-two punch of returns. (For more, check out Dividend Yield For The Downturn and Dividend Facts You May Not Know.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    The Biggest Risks of Investing in Netflix Stock

    Examine the current state of Netflix Inc., and learn about three of the major fundamental risks that the company is currently facing.
  2. Stock Analysis

    What Seagate Gains by Acquiring Dot Hill Systems

    Examine the Seagate acquisition of Dot Hill Systems, and learn what Seagate is looking to gain by acquiring Dot Hill's software technology.
  3. Mutual Funds & ETFs

    What Exactly Are Arbitrage Mutual Funds?

    Learn about arbitrage funds and how this type of investment generates profits by taking advantage of price differentials between the cash and futures markets.
  4. Investing News

    Ferrari’s IPO: Ready to Roll or Poor Timing?

    Will Ferrari's shares move fast off the line only to sputter later?
  5. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  6. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  7. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  8. Stock Analysis

    2 Oil Stocks to Buy Right Now (PSX,TSO)

    Can these two oil stocks buck the trend?
  9. Investing News

    What Alcoa’s (AA) Breakup Means for Investors

    Alcoa plans to split into two companies. Is this a bullish catalyst for investors?
  10. Investing

    A Look at 6 Leading Female Value Investors

    In an industry still largely predominated by men, we look at 6 leading female value investors working today.
  1. Can working capital be too high?

    A company's working capital ratio can be too high in the sense that an excessively high ratio is generally considered an ... Read Full Answer >>
  2. How do I use discounted cash flow (DCF) to value stock?

    Discounted cash flow (DCF) analysis can be a very helpful tool for analysts and investors in equity valuation. It provides ... Read Full Answer >>
  3. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  4. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  5. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  6. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!