“Many companies have more cash on their balance sheets than ever, making investment-grade corporate bonds an attractive option for securing higher yields. Current high corporate yield spreads are based on general investor angst, rather than fundamental weakness, creating income-generating opportunities,” according to BlackRock.
The company also makes the case for allocating a portion to dividend-paying stocks for income.
“Many companies that pay dividends are currently delivering twice the yields of benchmark government bonds. And, dividend growth has historically outpaced inflation—providing a source of real income and the potential for capital growth—because dividend payers are typically strong companies,” BlackRock said.
Corporate America is sitting on a lot of cash and more companies are beginning to dole out more with dividends. With companies issuing higher payouts and bond yields still low, dividend ETFs may begin to attract even greater interest. [Dividend ETFs in Focus as Companies Raise Payouts]
Many dividend ETFs are currently yielding more than the 10-year Treasury note. Still, some analyst warn that valuations aren’t as cheap as they were a year ago, so investors need to temper their expectations and be prepared for volatility. [Three ‘Fairly Valued’ Dividend ETFs]
ETFs in this category include iShares High Dividend Equity (NYSEArca: HDV), SPDR S&P Dividend (NYSEArca: SDY) and Vanguard High Dividend Yield (NYSEArca: VYM).