Yield, it seems, continues to be on the minds of investors everywhere. With interest rates continuing to hug record lows, finding meaningful current returns has become a continuous struggles for a wide range of investors. Many asset classes that traditionally supply meaningful yields have dried up, sending investors on a quest for alternatives that can potentially fill the yield void. Many have ventured off the beaten path, embracing securities that weren’t necessarily on their radar screens prior to the recent recession [see Monthly Dividend ETFdb Portfolio].
Below, we profile a handful of asset classes that have historically been known as destinations for yield-hungry investors. Some of these continue to offer hefty distributions, while others have less to offer.
Fixed Income: Long-Term Treasuries
The iShares Barclays 20+ Year Treasury Bond Fund (TLT, B) has long been popular with investors looking to generate yields without taking on substantial credit risk. But with interest rates at record lows, ETFs such as TLT don’t pack quite the punch they once did; this ETF has a 30-day SEC yield of about 2.7% [see also Bond ETFs For Every Objective].
Fixed Income: Long-Term Corporates
For investors who want to scale down the credit spectrum a bit, the iShares 10+ Year Credit Bond Fund (CLY, B+) offers a bit more risk that brings a slightly higher yield. This ETF currently has an SEC yield of about 4.1%.
Fixed Income: Junk Bonds
Junk bonds have been a traditionally popular choice for investors looking to beef up current return by taking on some additional credit risk. Though the iShares iBoxx $ High Yield Corporate Bond Fund (HYG, A) offers a step-up in yield — the 30-day SEC yield is now about 5.5% — it certainly doesn’t stack up with what was once available from this asset class [see 8% Yield ETFdb Portfolio].
Fixed Income: Emerging Market Debt
Emerging market debt has seen its appeal rise in recent years, as U.S. investors have shed their home country bias and acknowledged developing markets as relatively low credit risks and potentially very attractive borrowing partners. Dollar-denominated ETFs such as the JP Morgan USD Emerging Markets Bond Fund (EMB, B) have a 30-day SEC yield of about 3.4%, while local currency funds such as (LEMB, A-) might offer some additional returns (that ETF has a 30-day yield of about 3.9%).
For investors looking to enhance the yield from the stock component of their portfolios, utilities represent a potentially attractive option. Known for low volatility and high yields, utilities companies have grown in popularity in recent years as a place to ride out a stormy economic environment. The Dow Jones U.S. Utilities Sector Index Fund (IDU, A-) currently has a distribution yield of about 3.3% [see also How To Pick The Right ETF Every Time].
Telecoms represent another sector that receives interest from yield-hungry investors; this corner of the market is also relatively stable, and known for relatively high payouts. The Dow Jones U.S. Telecom Sector Index Fund (IYZ, B+) has a 30-day SEC yield of about 2.9% [see 3 High Yielding Telecom ETFs].
Stocks: Dividend Payers
Dividend paying stocks are another option for investors looking to lower volatility and boost yields. Of course, there are several different types of dividend ETFs; some focus on the highest yielders, while others concentrate on stocks that consistently boost payouts. The Dow Jones Select Dividend Index Fund (DVY, B+) has a 30-day SEC yield of about 3.6% — a significantly step up from broad-based indexes such as the S&P 500.
Many investors have been hesitant to jump back into real estate after the 2008 collapse in this asset class, despite what can be rather attractive yields. Though “plain vanilla” REIT ETFs such as the Dow Jones U.S. Real Estate Index Fund (IYR, A) have 30-day SEC yields in the neighborhood of 3.6%, it’s possible to capture significantly higher returns through mortgage REITs. (REM, B-), for example, has a 30-day SEC yield north of 12% [see Mortgage REIT ETFs: 10% Yields + Low Volatility].
Preferred stock, which exhibits features of both stocks and bonds, is another potentially attractive asset class for yield hungry investors. (PFF, A+) has a 30-day yield of about 5.9%, considerably higher than traditional stocks or bonds.
Finally, MLPs have drawn considerable interest as a non-traditional source of current income from all types of investors in recent years. These entities are responsible for transporting and storing energy commodities such as oil and natural gas, and have historically offered meaningful and stable distributions to investors. The Global X MLP ETF (MLPA) has a 30-day SEC yield of about 6.1% currently.
Disclosure: No positions at time of writing.