Investors looking to boost yield in their portfolios should consider alternate sources of income such as dividend-paying stocks and corporate debt with Treasury rates continuing to hover near all-time lows, says ETF provider BlackRock.
“The hunt for reliable investment income has never been more challenging. Interest rates on traditional ‘safe-haven’ bonds are at record lows,” the money manager says. “Money in the bank offers miniscule returns. Investors are left to wonder how to stay ahead of inflation without taking on too much risk.”
Although Treasury yields bumped higher in March, the 10-year note is yielding a paltry 2.2%.
“Attractive yields can be found in today’s markets—if you know where to look. For income that can beat inflation, investors need to look far and wide—and even consider new opportunities in familiar places,” BlackRock notes.
The firm is the largest U.S. ETF manager with over $500 billion in assets spread across its iShares funds, followed by State Street Global Advisors and Vanguard. [Vanguard Seen Passing State Street in No. 2 ETF Slot]
Russ Koesterich, iShares global chief investment strategist, this week said investors should proceed with caution on high-yield bond ETFs, which on Wednesday closed below the 50-day simple moving average for the first time since November. He prefers investment grade corporate bonds and municipals. [What High-Yield Bond ETFs are Saying About Stocks]
“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).