It has been written about to the point where investors are tired of hearing it, but it is worth repeating that dividend based investments are going to take on heightened importance and relevance in the future and particularly for 2011. Arguably the biggest reason why investors who need to derive income from their investment portfolios will start turning to dividend paying securities is that these types of income producing securities will not be impacted as much as bonds when rates start to increase.

Interest Rates and Preferred Shares

One of the safest ways to draw an income out of equities is through the purchase of preferred shares. While these types of securities will received a preferred dividend payout compared to common shares, there is also a lot less volatility in price. Still, these securities will deal with yield and whenever yield is involved, interest rate fluctuations will have a counter-corresponding impact on price... albeit much more muted here.

Interest Rates and Common Shares

Unlike preferred shares that will have muted price fluctuations with interest rate increases, common shares will have wider fluctuations. The biggest difference here is that once the immediate "shock" passes, common shares are apt to increase in value as rising rates tell investors that companies are doing well and the economy is seen as expanding. This spells profits and cash flow for companies, which bodes extremely well for their stock price.

The problem with common shares is that their dividends are normally lower than the dividends paid on preferred shares. This leaves the investor more inclined to hold such securities more for their growth attributes than for their income producing abilities.

Preferred or Common for Income

Most investors looking for a way to replace their bond income payments with a security that will not fluctuate as broadly as bonds will once rates start climbing will look to preferred shares. Yields are not only marginally better than they are on common shares (for the most part), but the security price will not move as much.

On the other hand, investors looking to cash in on the growth potential of an economic recovery and expansion can also earn dividend income through many of the common shares that trade on the markets. The trade off is greater volatility and lower income (again for the most part).

Either way, replacing bond income is not so much an issue for many investors, but deciding which way to invest (preferred shares or common shares) is the greater problem to solve. And while this may not seem like such a big problem to work through for 2011 when bonds may suffer market losses, a long-term investment plan needs to look beyond the next twelve months.

Chris has more than 17 years of financial services experience. He currently manages a website about Shipping Crate options at ShippingCrate.org as well as another about investing through Tax Lien List opportunities at TaxLienList.org.

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