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NEW YORK ( TheStreet) -- Today's economic environment is almost nonstop "inflation on" or "inflation off."
Today may have weak economic numbers on housing and unemployment with deflation as the big news story, and the next day high fuel and food prices. Meanwhile, banks are paying yields that are much lower than many investors hoped for just a few years ago.
One solution to the local bank and credit union low-yield blues is through dividend-paying stocks. What is a high-yielding stock? The answer varies right along with inflation and risk-free yields (savings accounts, Treasuries).
Based on today's bank yields and inflation, I examined companies offering yields of 2.8% or higher, with a focus on 3.05% or greater. The annual rate of inflation is near 1.4%. If we can receive a rate of return that is double the rate of inflation, the amount of real, after-inflation wealth will grow significantly with time.
Over the short run, everyone agrees that banks are a relatively safer place to park your cash. However, over the long run, it's hard to make an argument that a personalized portfolio mix will play second fiddle to almost any other public investing opportunity.
Using history as our barometer to gauge what to expect in the future, dividend paying stocks offer the best that investing has to offer.
Dividend investing is more than just collecting a check every three months. Finding high-yield stocks can also lead you on the right path for capital gains. All else being equal, dividend-paying stocks tend to perform better compared to non-dividend stocks over in the long run. Dividend payers also naturally provide risk mitigation.
Ok, we know dividend-paying stocks can outperform, but it's not as effortless as casually selecting the highest-yielding stocks you can find and calling your broker. If you buy a high-yield stock paying 5% and the stocks drops 10% in the next year, the investment loses the luster. There are no guarantees in the stock market, but we can filter the list to find the ones with the most promise.
I start by focusing on stocks I already either trade or follow and that have a large dividend. I add in a screen for large-yield stocks and add the ones that meet the following criteria:
The company must have a history of increases in dividend payments.
The company needs to demonstrate a likely ability to continue paying at least the current dividend.
The chart must be in a bullish uptrend; there is no point in looking for an oversized yield if the shares are expected to drop as much or more in the next year.