Bonds aren't the only investments that generate regular income. You might want to consider select high-income stocks. Preferred stocks are a way for companies to raise equity capital instead of taking on debt by selling bonds. Shareholders in preferred stocks have a higher legal claim to a company's assets and earnings than do its common shareholders, and preferred dividends take precedence over a company's payment of common dividends. Preferreds are typically issued with fixed dividends, so the securities tend to act as bonds do, fluctuating in price with market interest rates.
Earnings for All
- 35 Ways to Earn Up to 11% on Your Money
- Short-Term Accounts: 1%-2%
- Muncipal Bonds: 2%-3%
- Investment-Grade Bonds: 3%-4%
- Foreign Bonds: 3%-5%
- High-Yield bonds: 3%-6%
- Dividend-Paying Stocks: 4%-6%
- Real-Estate Investment Trusts: 4%-9%
- Closed-End Funds: 4%-9%
- Master Limited Partnerships: 8%-11%
The common stocks of electric, gas and water utilities have long been favorites of income hunters. As with other income vehicles, they face more risk of price declines as interest rates rise. But if income is your priority, focus on the prospects for a consistent payout rather than on stock-price volatility (see Steady Income from Volatile Sources). Telecom giants are also fertile hunting ground for payouts you can depend on.
The risks: Prices for these bond proxies often suffer when interest rates move up. Early this year, rising rates drove many preferreds lower–though not drastically. But the Dow Jones utility stock index plunged 17% from mid November 2017 to early February before recovering somewhat. That has driven yields up, with electric utility yields now mostly ranging from 3% to 6%. The dividends of select telecom stocks are essentially safe, but given debt levels and network spending needs, the payout growth rate is low.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
How to invest: Exchange-traded funds that own a mix of preferred stocks are an easy way to buy in. Three names worth investigating: iShares U.S. Preferred (PFF, $37, 5.3%), PowerShares Preferred (PGX, $14, 5.7%) and VanEck Vectors Preferred Securities ex-Financials (PFXF, $19, 6.3%). Utilities that should deliver consistent payouts include American Electric Power (AEP, $68, 3.6%) and Southern Co. (SO, $45, 5.1%). AT&T (T, $35) and Kiplinger Dividend 15 member Verizon Communications (VZ, $48) yield 5.8% and 4.9%, respectively. For the past 10 years, AT&T has raised its quarterly dividend by 1 cent every year, to the current rate of 50 cents per share. Verizon's payout has risen by 1.25 cents a year for the past few years, to 59 cents per share per quarter.
-
Small Businesses Are Racing to Use AIThe Kiplinger Letter Spurred on by competitive pressures, small businesses are racing to adopt AI. A recent snapshot shows the technology’s day-to-day uses.
-
The Me-First Rule of Retirement SpendingFollow the 'Me-First" rule and you won't have to worry about running out of money when the stock market goes south.
-
S&P 500 Slips Ahead of Fed Week: Stock Market TodayAll eyes are on the Federal Reserve ahead of next week's critical policy meeting.
-
Dow Gains 617 Points as Rate Cuts Near: Stock Market TodayWednesday's economic data didn't shift Wall Street's expectations that the Fed is preparing for a rate cut at next week's meeting.
-
S&P 500 Hits New High After Oracle Earnings: Stock Market TodayAnother down day for Apple held the Dow Jones Industrial Average back, though.
-
Stocks Grind Up to New All-Time Highs: Stock Market TodayUnitedHealth stock led the Dow Jones Industrial Average amid increasing signs the labor market has not been well for months.
-
Markets Prepare for August Inflation Data: Stock Market TodayApple CEO Tim Cook is still important, but price action this week is as much about incoming inflation data ahead of next week's Fed meeting.
-
Stocks Slip as Job Growth Stalls: Stock Market TodayThe August jobs report came in much weaker than expected, while the unemployment rate ticked higher.
-
S&P 500 Hits New High on Jobs Friday Eve: Stock Market TodayThe S&P 500 hit a new all-time closing high and most of the stocks in the Dow Jones Industrial Average were up the day before a critical jobs report.
-
Big Tech Names Rise Above Broad Weakness: Stock Market TodaySome familiar names enjoyed solid rallies on the resolution of outstanding questions, but macro uncertainty hangs over the broader market.
