Tags: interest rates | cash | dividend | stocks
OPINION

With Rates Set to Fall, Investors' Interest Switches From Cash to Dividends

With Rates Set to Fall, Investors' Interest Switches From Cash to Dividends
(Dreamstime)

Nigel Green By Wednesday, 21 February 2024 10:16 AM EST Current | Bio | Archive

As central banks worldwide, including the Federal Reserve, seek to adopt accommodative monetary policies at some point this year, the allure of cash savings is diminishing, and investors are turning their attention to alternative avenues, notably dividends.

Historically, savers could depend on competitive interest rates to grow their savings steadily. However, as interest rates are likely to be cut in 2024, the returns on cash savings are diminishing. This has significant implications for individuals who rely on interest income from savings accounts as a source of financial stability.

Falling interest rates translate to lower yields on savings accounts, money market funds, and other fixed-income investments.

Savers accustomed to healthy returns from conservative investments are now grappling with the challenge of minimal interest income. This situation erodes the purchasing power of their savings over time, especially when factoring in the impact of inflation.

Investors seeking a balance between capital preservation and income generation are increasingly turning away from traditional savings accounts.

As a result, they’re exploring alternative investment opportunities that offer a more attractive risk-reward profile, and dividends are rising to the forefront.

The appeal of dividends

Dividend-paying stocks are gaining traction as investors seek sources of income that outpace inflation and provide a more robust return compared to cash savings.

Dividends represent a portion of a company’s profits distributed to shareholders, offering a consistent income stream.

In a lower-interest-rate environment, dividends become increasingly appealing for four key reasons:

First, yield attraction. Dividend yields on certain stocks can outpace the interest rates offered by savings accounts and other conservative investments. Investors looking for income are drawn to stocks with a history of stable and growing dividend payments.

Second, potential for capital appreciation: Dividend-paying stocks not only provide income through regular payouts but also offer the potential for capital appreciation. As companies grow and prosper, their stock prices may increase, leading to additional returns for investors.

Third, inflation hedge. Unlike fixed-rate savings accounts, dividends have the potential to keep pace with or even outpace inflation. This is crucial for maintaining the real value of income over the long term.

And fourth, diversification. Including dividend-paying stocks in a well-balanced investment portfolio can enhance diversification, spreading risk across different asset classes. Diversification is a key strategy for mitigating risk and achieving more stable returns.

The Time-sensitive Opportunity

While the shift towards dividends is gaining momentum, the opportunity to secure attractive dividend income at current prices may not last indefinitely. As more investors recognize the benefits of dividends in an expected lower-interest-rate environment, demand for dividend-paying stocks may increase, potentially driving up prices.

Investors looking to capitalize on this trend should consider taking action sooner rather than later. Identifying well-established companies with a history of consistent dividend payments and a strong potential for future growth is crucial for building a resilient dividend portfolio.

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London-born Nigel Green is founder and CEO of deVere Group. Following in his father’s footstep, he entered the financial services industry as a young adult. After working in the sector for 15 years in London, he subsequently spent several years operating within the international space, before launching deVere in 2002 with a single office in Hong Kong. Today, deVere is one of the world’s largest independent financial advisory organizations, doing business in 100 countries and with more than $12bn under advisement. It specializes global financial solutions to international, local mass affluent, and high-net-worth clients. In early 2017, it was announced that deVere would launch its own private bank. In addition, deVere also confirmed it has received its own investment banking license.

© 2024 Newsmax Finance. All rights reserved.


NigelGreen
As central banks worldwide, including the Federal Reserve, seek to adopt accommodative monetary policies at some point this year, the allure of cash savings is diminishing, and investors are turning their attention to alternative avenues, notably dividends.
interest rates, cash, dividend, stocks
591
2024-16-21
Wednesday, 21 February 2024 10:16 AM
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