13 Investment Ideas That Yield 2-4%

If you buy a Treasury bond, you know you’ll get back your principal. But that doesn’t mean you won’t lose money. Consider: The yield on ten-year Treasuries is bobbing around at about 1.7%. But given expectations of 2.3% inflation this year—and who knows how much down the road—a 1.7% yield means “you’re going backward a little more slowly than in a savings account,” says Ronald Weiner, president of RDM Financial Group, in Westport, Conn. So we focus on investments that (with one exception) yield 2.5% or more.

Start with dividend-paying stocks. You’ll earn the payout, plus there’s potential for share-price gains. We’re partial to funds that invest in com­panies that regularly boost their dividends, rather than those that pay the highest yield. That’s why we like Vanguard Dividend Growth (symbol VDIGX, yield 2.1%) and SPDR S&P Dividend (SDY, 2.6%), an exchange-traded fund. Over the past five years, both funds returned more than Standard & Poor’s 500-stock index (all figures are through April 5).

Among individual stocks, Philip Morris International (PM, recent price $93, yield 3.7%) boasts high profit margins and exposure to developed and emerging markets. We like Chevron (CVX, $118, 3.1%) because it leads the big-energy group in profitability. RPM International (RPM, $30, 3.0%), which owns Rust-Oleum, the paint and protective-covering maker, is a play on the recovering U.S. housing market. And Swiss drug giant Roche Holding (RHHBY, $59, 2.9%) is bolstered by two blockbuster products that have patent protection until 2019.

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As for bond funds, we’re keen on managers who can troll the entire world of fixed-income securities. That’s why we like Osterweis Strategic Income (OSTIX, 2.9%) and Metropolitan West Unconstrained Bond (MWCRX, 2.7%), go-anywhere funds that are well-positioned to withstand rising interest rates. Consider, too, DoubleLine Total Return (DLTNX, 3.8%), which holds non-government-agency mortgage bonds, a good play in times of rising rates. All three are in the Kiplinger 25, the list of our favorite funds.

Although floating-rate loans come with some credit risk, delinquency rates are falling. Fidelity Floating Rate High Income (FFRHX, 2.5%) and T. Rowe Price Floating Rate (PRFRX, 3.0%) are the top picks in this sector.

Junk bonds are riskier, so we look for conservatively managed funds. Fidelity Focused High Income (FHIFX, 3.6%) concentrates on double-B-rated bonds, which are one notch below investment-grade status. And Wells Fargo Advantage Short Term High Yield Bond (STHBX, 2.5%) buys—you guessed it—short-term junk bonds.