High-yield dividend stocks and related exchange traded funds have been underperforming the market on speculation of higher interest rates, but without an immediate Federal Reserve rate hike, the income-generating assets could shine.
According Barclays analysts led by Jonathan Glionna, utilities, master limited partnerships and real estate investment trusts deserve a second look as the markets may not see a substantial rise in rates in the near-term due to overseas factors, such as the sudden devaluation in the Chinese yuan, reports Julie Verhage for Bloomberg.
Income investors can capture these broad segments of the market through ETFs. For instance, the Utilities Select Sector SPDR (NYSEArca: XLU) has a 3.5% 12-month yield, Vanguard Utilities ETF (NYSEArca: VPU) has a 3.45% 12-month yield and iShares U.S. Utilities ETF (NYSEArca: IDU) has a 3.4% 12-month yield. [Yield-Generating ETFs To Play If The Fed Stands Pat]
For broad real estate investment trust exposure, the Vanguard REIT ETF (NYSEArca: VNQ) has a 3.86% 12-month yield, SPDR Dow Jones REIT ETF (NYSEArca: RWR) has a 3.15% 12-month yield and iShares Dow Jones US Real Estate Index Fund (NYSEArca: IYR) has a 3.69% 12-month yield.
Moreover, the largest MLP-related options include the JPMorgan Alerian MLP Index ETN (NYSEArca: AMJ), which has a 6.08% 12-month yield, and Alerian MLP ETF (NYSEArca: AMLP), which has a 7.54% 12-month yield.
However, utilities, MLPs and REITs are more sensitive to changes in interest rates as investors would rather have safer government Treasuries as rates rise.