13 Investment Ideas That Yield 4-6%
To get more yield, you must generally take on more risk.
To get more yield, you must generally take on more risk. But in the case of dividend-paying stocks, that may not always be the case. Some high-yielders, such as AT&T (T, $38, 4.7%), Verizon Communications (VZ, $50, 4.1%) and Intel (INTC, $21, 4.2%), are financially strong companies that have the wherewithal to sustain their payouts. Jason Brady, who runs mostly bond funds at Thornburg but also dabbles in stocks, favors telecom companies because of the rapid growth of smart phones. One of his favorites is Telstra (TLSYY, $24, 6.0%). We took a page from his book: iShares International Select Dividend ETF (IDV, 5.2%) tracks an index that includes 100 high-yielding stocks in developed foreign markets.
Preferred shares are stock-bond hybrids. They pay a fixed, regular dividend like bonds, but the shares trade like stocks. Because financial firms are big issuers of preferred stock, preferreds suffered terribly during the 2008 financial crisis. But they’ve recovered strongly since then. One ETF, iShares S&P U.S. Preferred Stock (PFF, 5.6%), holds 75% of its portfolio in banks, insurance and diversified financial-services companies. Despite its name, it holds some foreign stocks, too—most of them U.K. banks, including HSBC.
Bonds in developing countries are paying yields of more than 4% these days. T. Rowe Price Emerging Bonds (PREMX, 4.3%) and Fidelity New Markets Income (FNMIX, 4.3%) hew closely to a JPMorgan emerging-markets bond index. That means both have about 60% of their assets invested in dollar-denominated government debt from developing nations. Aberdeen Asia-Pacific Income (FAX, 5.4%), a closed-end fund, focuses on Australian and Asian debt. Morningstar analyst Steven Pikelny likes that Aberdeen has managers on the ground in the region, with offices in Singapore, Sydney and Bangkok (see the accompanying list of terms for more on closed-end funds).
You can’t talk about this yield range without mentioning junk bonds. A key benchmark, the Bank of America Merrill Lynch High Yield Master II index, currently yields 5.9%. Wells Fargo Advantage High Income (STHYX, 4.0%) yields less because of expenses and because it is more conservatively managed than many junk funds. Still, High Income beat its typical peer over the past three years, with a 10.3% annualized return—and it did so with less volatility. The biggest junk bond ETF is iShares iBoxx $ High Yield Corporate Bond (HYG, 4.9%). It charges annual fees of 0.50%.
Finally, real estate: Health Care REIT (HCN, $70, 4.4%), a real estate investment trust, and CBRE Clarion Global Real Estate Income(IGR, $10, 5.7%), a closed-end fund, offer exposure to two growing areas of the sector. The growth catalyst behind HCN is the firm’s senior-living communities; CBRE is a real estate firm with offices around the world. Although most of CBRE’s assets are invested in North America (59%), it has a chunk across Asia (29%), which makes it a good bet for cashing in on rising consumer wealth in that region. The fund recently traded at a 4% discount to net asset value.