Earn More on Your Savings: Invest in Dividend-Paying Stocks

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With banks paying so little interest on your savings, now may be the right time to invest in dividend-paying stocks.

If you’ve got money in the bank, you’re likely earning some interest — but not a lot.

Many banks today offer less than 0.05 percent annual percentage yield on deposits in regular savings accounts and even on certificates of deposit with maturities of one-year or less, according to a Money Talks News survey of current offerings.

Your money is safe in a bank or credit union, but you pay for that safety by earning less interest, says Money Talks News financial expert Stacy Johnson.

Stocks are known for their risks but often offer higher rewards for sticking your neck out a little, Stacy says.

For example:

  • AT&T: At its recent price of around $34 a share, the telecommunications giant’s message to you would be a dividend of about 5.5 percent.
  • Microsoft: Recently priced at $44 a share, the software behemoth would seem to excel at a 2.8 percent return on your investment.
  • McDonalds: At its recent price of $94 a share, the fast food leader would pay you a tasty 3.6 percent.

Dividends can go up or down over time, as can the share prices of companies you purchase.

To compute a dividend yield, divide the annual dividend by the current stock price. For example, if stock in Company A cost $50 a share and the company paid an annual dividend of $1, its yield would be 2 percent.

Research any company before you buy its stock

“It’s better to have a partial interest in the Hope diamond than to own all of a rhinestone,” billionaire master investor Warren Buffett says in his Feb. 28 annual letter to Berkshire Hathaway shareholders. In the letter, commemorating 50 years of running Berkshire, he talks about the importance of dividends.

Berkshire increased its ownership interest last year in each of its “Big Four” investments – American Express, Coca-Cola, IBM and Wells Fargo. Together, those companies paid Berkshire dividends of $1.6 billion, up from $862 million three years earlier, Buffett said.

Berkshire reported net income of $19.9 billion for 2014.

Berskhire’s other top stock holdings, the letter says, are DaVita HealthCare Partners, Deere & Co., DirectTV, Goldman Sachs, Moody’s, Munich Re, Procter & Gamble, Sanofi, U.S. Bankcorp, USG Corp., and Wal-Mart.

The Oracle of Omaha also notes in his letter that stock prices will be volatile but “widely diversified stock portfolios that are bought over time and that are owned in a manner invoking only token fees and commissions” will not be risky.

He says investors may see “a good income for life by simply buying a very low-cost index fund whose dividends would trend upward over the years and whose principal would grow as well (with many ups and downs, to be sure).”

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