While the economy is certainly sluggish, it is difficult to
argue that the sentiment is as bad now as it was in the dark days
of 2008. Yet despite this, the ultimate safe haven- U.S. Treasury
bonds-are approaching all time highs in price and record lows in
terms of yield.
10 year government debt is now sporting a paltry 1.65% yield
while 30 year securities currently have rates around the 2.70%
mark, figures that rival 2008 levels and are at least half of what
investors saw in these notes a decade ago. Since Bernanke has
pledged to drive the longer term rates lower via a continuation of
Operation Twist, it seems highly likely that these low levels could
be here to stay for quite some time (read
Rules of Dividend Investing
Given this policy, investors have been forced to seek high
dividend paying stocks for current income opportunities. Luckily
for these income-starved investors, there are a host of securities
that have yields above even the 30-year Treasury payout. Not only
that, but these stocks offer up the potential to appreciate in
value as well, something that is much more difficult to say for
Treasury bonds that are trading near all-time highs.
However, the space is not without risk as many of the most
popular dividend safe havens have had a rough time in the face of
the weak economy.
Procter & Gamble (
, for example, both pay out yields above the 30 year treasury rate
but have seen their prices fall by, respectively, 9% and 13% in
Clearly, investing for yield can still be fraught with risk,
even when buying ultra-safe companies that operate in 'safe haven'
segments of their respective industries. Still, options are limited
in the bond market-unless you are willing to tread into the junk
space-suggesting that for many investors, income is going to have
to come from stocks for the foreseeable future.
Unfortunately, each of the main dividend segments has their own
issue which could either cut payouts in the future, or at least
depress stock prices in the near term (see
11 Great Dividend ETFs
Big Pharma is facing a patent cliff, while integrated oil is
fighting against low oil prices. Additionally, consumer staples are
up against a slowdown in demand from emerging markets, while
utilities haven't been helped by the tepid economic recovery here
in the U.S.
So, the question is,
given the uncertainty and the low rate environment, where
do investors go for yield?
Personally, I am intrigued by the MLP segment,
American Capital Agency Corp (
, and some high quality names in the international ETF space such
Global X SuperDividend ETF (
EG Shares Low Volatility Emerging Market Dividend ETF (
. These securities all have outsized yields and can be more immune
to economic shocks thanks to either their diversified holdings, or
the stable payouts inherent in their businesses (read
Invest Like The One Percent With These Three
What about you? What is your favorite dividend stock/fund on the
Let us know what you think in the comments below!
Author is long EXC
AMER CAP AGENCY (AGNC): Free Stock Analysis
EXELON CORP (EXC): Free Stock Analysis Report
EGS-LO VT EM DV (HILO): ETF Research Reports
PROCTER & GAMBL (PG): Free Stock Analysis
GLBL-X SUPERDIV (SDIV): ETF Research Reports
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