With interest rates falling, it's time to look to dividend stocks yielding 6%+ for income

In recent years, it has not been difficult to generate income from cash savings. With many savings accounts offering high interest rates (5%+), it can be easy to generate very little cash.

With interest rates now falling in the UK however, the landscape is changing. Suddenly, the outlook for savers is a little more worrying as interest rates on savings accounts drop.

Less cash flow

I have experienced the drop in interest rates myself. Until recently, my savings account with digital bank Marcus was paying me 4.75% interest. Now though, the benchmark rate is 4.55% (and 0.49% of that bonus rate that expires in October).

Similarly, my Chase savings account was paying me 4.1% interest until earlier this month. However, now the rate is only 3.85%.

Sadly, I think these prices will drop significantly in the near term. That's because the Bank of England (BoE) is expected to continue cutting rates from the current 5% rate.

Most experts expect only one cut this year. But next year is a different story. Some analysts believe the BoE may cut rates to around 3%. In this case, we can look at rates of around 2%-2.75% from savings accounts.

Generating income from stocks

The good news is that there are other ways to generate income. Another strategy that can be very profitable is investing in equity stocks.

These stocks pay investors regular cash payments on the company's profits. And the yield can be very attractive. You have London Stock Exchangethere are many stocks that yield 6% or more. As rates on savings accounts go down, that kind of yield is attractive.

One example of a dividend stock with a high yield is a banking giant HSBC (LSE: HSBA). In 2023, it rewarded shareholders with a total dividend of 61 cents (its currency is in US dollars) per share. At today's share price and GBP/USD exchange rates, that equates to a 7.3% yield. If I were to invest £5,000 in bank stocks, I would be looking at an income of around £370 a year.

What is the catch?

Now, it's worth pointing out that dividend stocks are riskier than savings accounts. When you buy a stock, your principal is at risk because stock prices can fall in the short term.

In the case of HSBC, the share price may be pushed back if economic conditions deteriorate rapidly (banks' fortunes are tied to economic conditions). The stock may also experience a fall if there is general market volatility.

Another thing worth mentioning is that dividends are not guaranteed. Companies may cut, stop, or cancel these payments at any time.

However, over time, good companies are able to increase their profits. And higher profits can lead to higher share prices and higher dividend payouts to investors.

Looking at HSBC, I think it has the potential to increase its profits over time. Today, the bank is focusing its efforts on Asia and wealth management and both areas have many strengths.

So I think stocks should be considered an income play.