Income is both extremely desired, and very hard to achieve in today’s market. Based on the economic data which hit the morning of the 7th, it seems likely to stay that way. So where are the best places to find income? One of the first places investors think of outside of bonds is the dividend aristocrats, but the bad news is they are only yielding 1.9%. If you need more income, check out high yield bond ETFs like the SPDR Bloomberg Barclays High-Yield Bond ETF (JNK), which yields 4%. But the best bet is to look at bond closed end funds, for example the DoubleLine Income Solutions Fund run by bond legend Jeffrey Gundlach. The fund yields 7.3%.
FINSUM: Bond closed end funds are great. Many trade at a discount to their NAV and they have very nice yields.
65 Stocks make up the dividend aristocrats in the S&P 500, known for their consistency, however some…see the full story on our partner Magnifi’s site
It is no secret that oil and gas stocks have great dividends. What makes the sector special right now is that the sector is also looking like a good investment for capital appreciation because of the rise of the “commodities super cycle”. With all that in mind, check out these three names for good income: Marathon Petroleum (MPC) or its MLP, MLPX, Energy Transfer (ET), and Antero Resources (AR). All three opportunities currently offer double digit yields.
FINSUM: Oil is definitely in recovery mode, so the combination of value and income is compelling.
Infrastructure investment is a fascinating area that can have good yields and strong returns. However, advisors should be forgiven if they feel like the hype that has surrounded it over the last five years has never matched reality. Politicians have been talking about a new golden age of US infrastructure investment since the Obama years, yet almost nothing has materialized. That seems like it will change under Biden, and the whole sector looks poised to benefit. According to Goldman Sachs, the big winners look likely to be materials, construction, and machinery stocks.
FINSUM: Frontrunning this infrastructure package could be a good idea. As soon as there is an indication that it may become a reality, there will likely be a work-from-home-like jump in prices.
Dividends have had a tough year. Because of the pandemic, many companies have had to cut their dividends in the face of losses or declining profitability. Even some who have maintained or raised dividends cannot really afford to do so. Therefore stable, rising dividends with healthy underlying companies are very prized right now. Here are some good names to look at: Whirlpool, Avery Dennison, American Electric Power, and Crown Castle International. All four have recently raised their dividends on the back of robust business. Whirlpool, a major appliance manufacturer seems to be riding the home improvement wave, while Avery Dennison, which makes packaging, is likely benefitting from ecommerce gains. The others (a utility and a cell tower company) have inherently durable businesses.
FINSUM: Cell towers, utilities, and packaging materials seem like very strong areas even if the pandemic gets worse this winter, and there is almost zero rate risk at present.
Dividend stocks have gotten a whole lot harder to choose this year. It used to be that you could pick a wide selection of stable decent-yielding stocks and hold them for the long haul. However, COVID has disrupted that in many ways, as it has disproportionately weakened some sectors and disrupted many business models. With that in mind, here are three key lessons to remember when choosing dividend stocks in 2020: expect lower payouts, be wary of financing, don’t chase after yields. The first one is simple—many companies have had to cut dividends and many more will. The second is highly related to the first: be wary when companies have to use debt in order to maintain a dividend. In that sense, simply maintaining the dividend is not necessarily a sign of strength. Finally, and most interestingly, is the lesson about not chasing yields. Because yields are so low, dividend stocks are likely to see gains anyway, so it is more important to focus on the sustainability of dividends than chase yields that might collapse.
FINSUM: All of these lessons make a great deal of sense in the current environment. We particularly like the idea that stocks which don’t have the very highest dividends might actually produce the best combined returns.