Yearning for yield
When stock prices take a nosedive, investors flock to stocks that pay dividends, said Gregory Zuckerman in The Wall Street Journal. “But some high-dividend stocks can be dangerous, especially as corporate profits fall, cash flows shrink, and companies find it more difficult to make these payments to shareholders.” Companies hard up for cash can slash their dividends as they see fit. So “look beyond yields,” especially if the dividend yield—that is, the dividend as a percentage of the stock price—seems unsustainable. Favor companies that have “reliable” dividends and business models that hold up in even the toughest economies. Coca-Cola, Altria Group, and Merck, to name a few, “sport dividend yields ranging from 3.4 percent to 6.6 percent and are considered relatively safe picks even in a painful global recession.”
Pay down your mortgage?
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It rarely makes sense to pay down your mortgage ahead of schedule, said Bob Tedeschi in The New York Times. But right now it might. Usually, you get a better return on that money by putting it in safe investments that yield a higher average return than real estate, and that don’t incur the after-tax interest you pay on a mortgage. In the current market, however, there are “few well-paying safe harbors for investors.” Throwing a few hundred extra dollars into the mortgage payment may not be such a bad idea, if you have extra cash and a secure job. The key number to consider is the “net interest burden” on your mortgage. If your loan charges 6 percent, the net interest burden is “probably around 4 percent.” The question is, can you find another investment whose return equals that rate? A 10-year U.S. Treasury bond, for instance, recently yielded 3.8 percent. Of course, T-bonds are a far more liquid investment than real estate.
Hybrid gas guzzlers
Hybrid vehicles are the “undisputed darlings” of an otherwise dismal American car market, said Daren Fonda in SmartMoney. But “the current crop of hybrids offers surprisingly measly mileage”—with the notable exception of the Toyota Prius and Honda Civic. In fact, half of the 2009 hybrids rated by the Environmental Protection Agency “barely crack 25 mpg.” That means most models won’t exactly pay for themselves, considering that the average hybrid sells for $5,000 more than its gas-powered equivalent. In some cases, the price differences are even steeper. A 2009 Toyota Highlander hybrid sells for $11,000 more than the conventional Highlander and “barely” bests its gas mileage: At today’s fuel prices it would take more than 20 years to break even. The 2009 Lexus LS 600h L—which costs $106,000—gets just 22 mpg on the highway. That makes it less fuel-efficient than its nonhybrid counterpart.
