Investors have been foraging for yield the last couple of months as Treasury yields have fallen to record lows and inverted yield curves are emanating recession signals from the bond markets. However, there is still yield to be had when it comes to looking at certain corners of the market, like exchange-traded products (ETPs).
“You’re not getting much yield, if any, or growth from bonds. So even conservative investors have to look more at high quality stocks,” said Kevin O’Grady, a portfolio manager at Miracle Mile Advisors.
One area that has been getting more focus is zeroing in on quality–this is true in terms of debt and a company’s business model.
“Companies with strong business models and high profit margins will be more resilient in any downturn,” he said.
As investors continue to swallow up bonds faster than a thirsty camel in the desert sun, it’s been putting downward pressure Treasury yields amid the scramble for safe-haven assets. However, one way to combat negative yields is by adding more dividend-yielding equities via ETPs.
Whether it’s the short or long end of the yield curve, some analysts are suggesting dividend-yielding stocks as a better option. For the first time since March 2009, the benchmark U.S. 30-year yield dropped below the S&P 500′s dividend yield last month.
The U.S.-China trade wars have been responsible for much of the sell-offs in equities. Since bond prices move conversely to yields, investors’ demands for safer government debt has been contributing to the downward slide in Treasury yields.
“I think what a lot of people overlook is they get too caught up in just searching for yields,” Daniel Sotiroff, a manager research analyst for Morningstar. “Some of the funds don’t have effective screens that look at profitability and stability of the business…Some have distressed companies in the high-yield market. You have to know what you are getting into.”
One place to start is by looking at the top 10 highest yielding dividend ETPs:
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