Fact: there are still lots of big, cheap and safe dividends out therebut theyre going fast as this market floats higher.
So today were going to get right to it and look at four options for your portfolio now, ranked from worst to first.
Worst to First Income Play No. 4: 10-Year Treasuries
The 10-year Treasury offers a safety feature mainstream investors love: no matter what happens, youll get your principal back after 10 years.
Thats actually a trap, though, because inflation gnaws at your nest egg the whole time, and your yield1.6% todaywont help you: its 40% below the rate of inflation, which jumped 2.6% year over year in March!
Even if you set that depressing fact aside, youd still need to save $2.5 million to get $40,000 in income from a Treasury, which I see as the minimum most folks would need for a decent retirement.
Meantime, Treasuries have taken a beating this year, driving their yields up. Since inflation drives up Treasury yields (and depresses bond prices, which move in opposition to yields), thats likely to continue, making buying now, and missing out on a potentially higher yield later, pretty unappealing.
Treasuries Get Clobbered
Worst to First Income Play No. 3: Dividend Aristocrats
Next up is the dividend play everyone thinks of firstwhich is why its the most overrated! That would be the Dividend Aristocrats, or the 65 stocks that have raised their payouts for 25 straight years or more.
Great as that sounds, these stocks arent the place to look for current income: they only yield 1.9%, on average, today , which is just plain weak: its just a hair above the S&P 500 average of 1.3%. And bear in mind that the S&P 500 includes many stocks that pay no dividends at all!
And despite the Aristocrats growing dividends, these stocks trail the S&P 500 by total return (or with dividends included) over the last three years, going by the return of the benchmark ProShares S&P 500 Dividend Aristocrats ETF (NOBL):
Dividend Monarchy as Lame as the Real Thing
This isnt to say that all Dividend Aristocrats are to be avoided. Ecolab (ECL), for example, handed us a tidy 31% return in a little over a year and a half after we added it to my Hidden Yields services portfolio in April 2018. But you do need to be choosyand whatever you do, avoid buying these stocks through ETFs.
Worst to First Income Play No. 2: High-Yield Bond ETFs
That brings us to corporate bonds, but were not going to go shopping in the investment-grade aisle. Thats because theyre a crowded trade, with many institutional players limited to only these corporates, which are mainly issued by big, well-established companiesthink Apple (AAPL), Pfizer (PFE), Walmart (WMT) and the likeand therefore pay lousy coupon rates.
Instead, were going to hunt for bargains among non-investment grade, or junk, bonds, where yields are a lot higher. The ETF play here is the SPDR Bloomberg Barclays High-Yield Bond ETF (JNK), which offers a 30-day SEC yield of around 4% as I write this.
Thats better than youll get from investment-grade corporates, stocks or Treasuries, but its still lousy, historically speaking. (Especially when, by going a step further, we can get a far bigger payout from high-yield bondssee our next pick, below).
There are a couple other reasons why JNK isnt your best route:
- JNK is an automated ETF, and in the world of non-investment-grade corporates, we need a pro at the helm to zero in on the best issues (and avoid the worst).
- JNK only has two ways to pay us: through its dividend and through gains in its bond portfolio. But our next option has three.
Worst to First Income Play No. 1: High-Yield Bond CEFs
With corporate bonds, youre far better off buying through a closed-end fund (CEF), rather than an ETF, for a few reasons. The first is that CEFs are run by human portfolio managers, and the best ones are backed by firms with deep research tools. That means they also get first crack at the best corporates as theyre issued.
You simply cant get either of these advantages from an algorithm-run ETF.
Next, as I mentioned a second ago, CEFs have three ways to pay us:
- Collapsing discounts: CEFs market prices often differ from their per-share net asset value (NAV, or the value of the investments in their portfolios). This never happens with ETFs. It also nicely sets us up to buy when discounts are large, then ride the price up as the discount vanishes.
- Big dividends: CEFs yield an outsized 7.2%, on average, today, and many high-yield bond CEFs pay much more (like the one well discuss below).
- Rising NAV, as the value of their holdings increases.
A great example of all three in action is the DoubleLine Income Solutions Fund (DSL), run by the so-called Bond God himself, Jeffrey Gundlach.
When we bought DSL four years ago, it traded at a 7% discount and yielded a gaudy 11%! Fast-forward to today, and that discount has narrowed to just 0.7% while paying a still very healthy 7.3%, far better than JNKs payout.
The funds narrowing discount has nicely supported its price, letting us enjoy our big yield in peaceand grab a 70% total return, nearly doubling JNKs performance.
CEF Smokes the High-Yield Bond ETF
These days, some of the best deals in the bond space are in CEFs that hold international bonds, like the Western Asset High Income II Fund (HIX). The fund still trades at a discount (around 2% as I write this), as rising rates in the US have lured investors away from international issues.
Will that hamper HIX?
Nope. Because the funds dividend (paid monthly, by the way) yields 8% now, and its highest-paying bond is a 7.4%-yielding issue from French telecom firm SFR SA. How can a 1.6%-paying Treasury compete with that? It cant, and we see this in HIXs NAV, which moved up in the last month:
HIXs High-Yield Bonds Draw Interest
This, by the way, is a nice time to buy, when a CEFs portfolio is showing strength, but the fund itself still trades at a discount.
2 Absolutely Critical Buys for 6.5% Dividends, 146% Returns
When it comes to high-yield investments, the regular farestocks and bondsare NOT your only option.
Theres another, even better play that gives us you MUCH more income than most bonds AND the unbeatable upside of a stock, too. These profit-either-way plays are normally the sole domain of billionaires, but theres a backdoor way you and I can jump inand grab two things we all crave in this now:
- Big dividends, paid monthlyIm talking 6.5% payouts hereand these dividends GROW on the regular!
- Big upside! The incredible dividend plays, which I call VIP Shares have racked up huge total returnsIm talking 146%+. And their biggest gains are still to come.
My research team and I have been working day and night to unearth all the details on these powerful VIP Shares. Weve narrowed our list down to 2 specific tickers to buy right now, and weve put everything you need to know about both in an exclusive FREE report you can access right here.
This may be the most important investment information you receive all yearand I urge you to act now, because our opportunity to grab these unbeatable income plays wont last long. Click here and get the full story.