Source: St. Louis Federal Reserve.

The Federal Reserve keeping its federal funds target near 0% for more than five years has been a godsend for homeowners looking to refinance and consumers looking to buy their first home. However, for investors and retirees, the perpetually low lending rate environment hasn't been as welcoming. With CD rates yielding less than 1% in many instances, consumers have been forced to branch out into new investment opportunities in order to grow their wealth. 

With this in mind, we asked three of our analysts what they would do in order to maximize their money investing in a low interest rate environment. Here's what they had to say. 

Dan CaplingerOne smart way to take advantage of low interest rates is to invest in companies whose business models rely on cheap financing. To the extent that these companies can take the money they get and invest it for better returns, the lower the rate they have to pay to borrow, the more profit they have left for their shareholders.

Source: TaxRebate.org.uk via Flickr.

Two examples of leveraged companies are real-estate investment trusts, or REITs, that invest in mortgage-backed securities and closed-end mutual funds that issue preferred shares to boost the leverage of their common shares. Mortgage REITs are notorious for their high dividend yields, and those payouts rely on healthy spreads between borrowing costs and the interest they receive on their mortgage-securities portfolios. Leveraged closed-end funds are less well-known, but many of them use a similar strategy with a variety of fixed-income and equity securities, issuing preferred stock tied to prevailing short-term interest rates and then doubling down on the positions in their investment portfolios.

Of course, to be successful, not only do financing costs have to remain low, but the investments these companies choose also have to have solid returns. If something goes wrong in their respective markets, then not even cheap financing will save them. But if they choose their investments wisely, leveraged companies can reap huge returns when rates stay low.

Matt Frankel: One of the best ways to achieve high yields and strong returns when interest rates are low is through REITs -- particularly, and this is where this idea differs from Dan's, those that invest in commercial properties. Two of my favorites in this category are Realty Income (NYSE:O) and National Retail Properties (NYSE:NNN), but there are plenty of good ones to choose from.

Commercial real estate leases work differently than residential ones in that they are very predictable. Lease terms are usually much longer, so there is a predictable income stream for 15 years or more. And, tenants pay expenses such as taxes, insurance, and maintenance, taking away a lot of the uncertainty associated with owning properties. 

In addition to a very attractive current dividend yield, these long-term leases create an income stream that grows nicely over the years, as can be seen in this chart of Realty Income's dividend history.


Source: Realty Income.

Because these companies pay so well, investors tend to flock to them in low-interest environments. Realty Income currently pays out 4.2%, and National Retail pays 3.9%, and these companies tend to be less volatile than most other stocks. Over the past year, both of these companies gained about 35%, handily outperforming the S&P's 9% gain.

So, when interest rates are extremely low, REITs can be a great place for growth and income in your portfolio.

Sean Williams: Although Dan and Matt have offered some great and specific ideas, I'm going to offer a broader way to take advantage of a low interest rate environment: high-quality dividend stocks.

Source: Flickr user Sushi Ina.

Specifically, I'd suggest avoiding potential yield traps and instead focus on companies with a long-tenured streak of dividend increases, such as Dividend Aristocrats. A Dividend Aristocrat is part of an elite club of a few dozen companies which have raised their annual payout for a minimum of 25 straight years. What this dividend tells you is that the company you're investing in has solid cash flow and that its business model can stand the test of time.

A Dividend Aristocrat, aside from putting more money in your pocket than you'd get from investing in a CD at the bank, also gives you the opportunity to supercharge your investment by reinvesting the proceeds of your dividend right back into the stock. This way your investment can compound even quicker.

While there are more than enough Dividend Aristocrats to choose from, Johnson & Johnson (NYSE:JNJ) and AT&T (NYSE:T) have always been favorites of mine. Currently boasting dividend yields of 2.7% and 5.6% respectively, J&J and AT&T absolutely trounce the annual return you'd expect from even the best CDs. Furthermore, their business models are so sound that you'd more than likely have the opportunity to see your shares gain in value long after rates begin to rise (whenever that happens to be).

Matt Frankel owns shares of Realty Income, National Retail Properties and AT&T. Dan Caplinger and Sean Williams have no material interest in any companies mentioned in this article.

The Motley Fool owns shares of and recommends Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.