Will dividend yields test 1999 lows? That was the title of my
post from a few weeks ago in which I explained to readers how the
dividend income drought facing investors continues into 2014.
Interestingly, the Federal Reserve's initiation of ZIRP (zero
interest rate policy) on Dec. 16, 2008 wasn't the beginning of the
bear market in dividend yields as some commentators have suggested.
Rather, the bear market in depressed yields is a three-decade long
trend that began in the early 1980s when the S&P 500's yield
peaked at 5.57% and has been down ever since.
in Emerging Markets Drag Down the U.S.?
Observing the trend of decelerating S&P 500 dividends
(NYSEARCA:SDY), FactSet wrote:
"Analysts' estimates for forward twelve-month dividend per
share ("DPS") growth have slowed for six consecutive quarters.
The current, forward twelve-month DPS growth estimate (+8.7%) is
the lowest projection since Q3 2010-a period when trailing DPS
growth was negative-and the estimate for growth in 2014 is even
lower at 8.5%."
The rule of 72, which tells us how long it takes for money to
double, gives us another historical perspective on today's
depressed equity yields (NYSEARCA:VYM).
In 1981, when the S&P's dividend yield was around 5.5%, it
took just 12.9 years for an income investor to double their money.
Today, with the S&P 500's current yield of around 1.88%, it
would take an income investor three-times as long or 38.3 years to
double their money!
To combat the extreme conditions of today's depressed yield
environment, it's imperative for today's dividend investor to be
savvier about their approach. What worked before doesn't
necessarily work today and having a total income approach that
stretches beyond traditional income sources is a must. People must
not live on dividends from stocks (NYSEARCA:PEY) and income from
bonds (NYSEARCA:BOND) alone!
The covered call strategy is one example of a high income
strategy we've talked about.
While equity dividend yields (NYSEARCA:DLN) have trended down,
our Income Mix Portfolio has generated $20, 945 of high income
since its Feb. 2012 debut. The
Mix ETF Portfolio
at ETFguide consists of a $100,000 portfolio that sells
monthly covered calls on a basket of low cost ETFs. Each month, we
tell readers the exact ticker symbols, expirations, and strike
prices we're selling.
Our April 2014 income trade generated $758 of monthly income and
assuming the latest income figures continue in future months, the
annualized yield rate works out to around 9%.
Combining the income generated from monthly covered calls along
with dividends is definitely a powerful arsenal. The correct answer
for today's extreme rate environment is an extreme solution with
While the covered call strategy isn't suited for growth
investors, it's still a highly effective strategy that more
investors with high income as their main goal should be using.
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