The recent 50-basis-point rate cut by the Federal Reserve is a double-edged sword for investors. They probably like that it makes more projects economical, which should presumably increase profits and stock prices. Nonetheless, investors hoping to earn more from bank deposits and fixed income instruments will likely find they now earn less in interest.
Still, both of these phenomena work in the favor of dividend stocks. Not only will stock prices rise, but such stocks, which tend to yield lower average cash returns than fixed income investments, suddenly become more attractive income investments. These phenomena should work in the favor of these higher-yielding stocks.
This post originally appeared at The Motley Fool.