Simple Solutions
Shortcuts to managing your finances that are guaranteed to save you time and money.
From Kiplinger's Personal Finance magazine, September 2005
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Boost your dividends
Need more income?
Simple solution: Buy stocks that pay dividends.
Labeled positively quaint by many investors in the late 1990s, dividends are again finding favor because they provide cash you can count on in a market fraught with uncertainty. And the low, 15% tax rate on dividend income doesn't hurt, either. "What attracts us to dividends is the stability of the cash they generate," says Scott Davis, 42, a General Electric sales executive who lives in Davis, Cal.
Scott and his wife, Toni, purchased a portfolio of dividend-paying stocks the easy way, through iShares Dow Jones Select Dividend Index (symbol DVY). This exchange-traded fund invests in 100 of the market's highest-dividend-paying stocks. To qualify, a company must have not cut its dividend in any of the past five years and must pay out 60% or less of its earnings in dividends -- assurance that the payments won't leave the company strapped for cash.
The fund invests mainly in large companies. It kicks out any stock that eliminates or significantly cuts its dividend, and it excludes real estate investment trusts, most of which aren't eligible for the 15% tax rate. The result is a package of conservative stocks dominated by banks and electric utilities. The fund's top holdings are Altria, FPL Group and DTE Energy. Expenses are a low 0.40% annually, and the yield is 3.3%.
Stocks that pay dividends produce better returns, on average, than those that don't. That's because before a company starts paying a dividend, it must be confident that it will continue to generate healthy earnings. "The case for dividend-paying stocks is a powerful one," says Jerry Tweddell, an investment adviser in Sonora, Cal., who manages the Davises' money.
-- Steven T. Goldberg
Give yourself a reward
Confused about which credit card offers the best rebate? Simple solution: Take the cash.
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It couldn't be easier. With a cash rebate, you get either a check in the mail or a credit on your statement, so you don't have to weigh the relative benefits of airline miles versus a new flat-screen TV. To find the best deals, we simplified the process by assuming that you spend $33 on gas each week, $100 a week on groceries and $1,000 per month on other purchases.
Tops is the Citi Dividend Platinum Select card (www.citibank.com). It charges 11.74% and offers rebates of 5% on purchases at supermarkets, drugstores and gas stations and 1% on everything else. But Citi caps its annual rebate at $300, which you would reach in about eight months under our scenario (at that point you could switch to another card). Exempt from the cap are goods bought through Citi's Dividend Merchant Network, which includes more than 200 retailers, catalogs and Internet sites. Those purchases earn rebates between 5% and 7%.
Next up is the National City Everyday Rewards Elite Visa (www.nationalcity.com), on which our yearlong spending spree would earn a rebate of $270. National City is unique in bundling restaurants with grocery stores in a single category, with rebates of 2%. With an interest rate of 10.49%, the card rebates 4% on gas, 3% on movies and up to 1% on everything else. There are spending caps in some categories.
The American Express Blue Cash card (www.americanexpress.com) carries an interest rate of 11.24%. It gives you up to 5% on groceries, gas and drugstore purchases, and up to 1.5% on the rest of your charges, up to a maximum expenditure of $50,000. Total rebate in our example: $266.
The Capital One No Hassle Cash card (www.capitalone.com) offers a rebate of up to 3% on gas and groceries and 1% on everything else you buy, with no dollar limit and a relatively modest 9.9% interest rate. You would earn an annual reward of $237 in our scenario.
The Chase Free Cash Rewards Platinum Visa card (www.bankone.com), which carries an interest rate of 11.99%, gives you one point for every dollar spent on purchases (with a $60,000 spending cap). And it has an interesting twist: a one-point bonus for every dollar you pay in interest. Each time you accrue 2,500 points, you receive a check for $25. Without the interest bonus, you'd be eligible for a rebate of $189, so the card is more attractive for card users who often carry a balance.
-- Joan Goldwasser
