But thanks to Federal Reserve Chairman Ben Bernanke's zero interest rate policy, prudence has become a tough way to fund your golden years.
With few places to find refuge and income, these cautious investors have been forced to look elsewhere-namely at dividend stocks.
Dividends, long used to pad portfolios with income, are no longer a risk-on or a boring way to invest.
Not only do dividends add value, but with a careful selection across several sectors, an investor can build a nice portfolio covering a broad range of industries.
What's more, dividend-paying stocks provide reliable returns at regular intervals, offer growth potential, and are not typically as economically sensitive as other high-beta and volatile companies.
Another bonus is that when the economy wanes and stock markets fall, dividend stocks pay investors to wait it out until things improve.
And since cash dividends are paid from a corporation's current earnings and profits, dividend investors have the added prospect that they may see their dividend payments raised as things improve.
That's why dividend stocks have been a long-term bright spot with investors clamoring for higher yields.
Nick Lawson, head of synthetics, macro and cross-selling for Deutsche Bank, told the Financial Times, "We've had a lot of people from fixed income coming into equities. I think it is straight yield. We have all been forced up the yield curve."
High Dividend-Paying StocksAs a result, there has been a rally in high-yielding dividend stocks.
"No one is saying you shouldn't own growth stocks," Oliver Pursche, co-portfolio manager of the GMG Defensive Beta Fund (MPDAX), told Forbes. "The point is that dividends are a key component of total return, so investing in high-quality, high dividend paying stocks that also have growth characteristics should do very well in 2012, just like they did in 2011."
Among Pursche's favorite dividend stocks are fast food king McDonald's (NYSE: MCD) yielding 2.93%; chipmaker Intel (NYSE: INTC) yielding 3.03%; and oil giant Royal Dutch Shell (NYSE: RDS-A) yielding 4.6%.
Dan Genter of the RNC Genter Dividend Income Fund, which targets dividend flows, recently shared his favorites with MSN Money. He too likes Intel. Genter is also a fan of Altria (NYSE: MO) yielding 5.09% and sister company Philip Morris International (NYSE: PM) yielding 3.49%.
Alliance Bernstein is wagering that the next wave of companies with fat wallets to pay out fatter dividends will thus become more attractive and include no other than the world's most valuable company Apple (Nasdaq: AAPL). The iPhone, iPad, iTunes and iPod maker will start rewarding shareholders with a dividend starting this summer.
What You Need to Know About Dividend StocksAll dividends are declared by a company's board of directors every time they are paid. Most dividends are paid quarterly, although some pay monthly, bi-annually, and annually or whenever declared by the company.
Regardless of when they are paid, there are four dates dividend investors need to remember:
- The declaration date is the date the board announces its intention to pay a dividend.
- The date of record is the date an investor must be a holder of record on the companies' books in order to be paid a dividend.
- The ex-dividend date is the most important date investors must consider. An investor must purchase shares of stock prior to the ex-date to be entitled to a stock's upcoming dividend.
- The payment date is the date the dividend will be paid.
While a high-yielding stock can be attractive and enticing, it is important to pay close attention to a stock's valuation and its sector.
In general, investors need to make sure that the company they are buying has a sound balance sheet and can maintain its healthy dividend. In addition, the company should be one an investor would feel comfortable buying without its alluring yield.
So whether you are young or old, dividend stocks warrant a place in any portfolio. And with the recent pullback, dividend-paying stocks have only become cheaper.
Related Articles and News:
These Four Dividend Stock ETFs Can Add Pop to Your Portfolio
Dividend Stocks: How to Soften the Bear's Short-Term Bite
How to Pick Winning Dividend Stocks
Four Dividend Stocks to Put Money in Your Pocket