Dividend Stocks To Combat Low Interest Rates

The U.S. Federal Reserve has announced that it would keep interest rates near record lows until at least 2014. With interest rates at rock bottom levels, dividend stocks offer investors an alternative bond-like instrument with a much higher yield. In this article, we'll look at why this trend exists, how to select the best dividend stocks and several key risks to keep in mind.

Dividend stocks tend to outperform the overall market in low interest rate environments. There are many reasons for this trend, including: Flight to Safety - Low interest rates generally coincide with poor economic health (since they are used to stimulate the economy), which is the same time many investors are seeking safer returns in blue chip or dividend paying stocks. Bond Alternatives - Low interest rates make U.S. bonds relatively unattractive, which encourages investors to move into other asset classes, like equities. Many investors may seek bond-like equities, such as dividend stocks, that offer an income.

Source: San Francisco Chronicle

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