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Interest rates are at record lows, and real returns on short-term Treasuries are expected to be negative. Investors seeking yield have bid up the prices of junk bonds and bid down their yields. This can be witnessed in the returns of the high yield debt (junk bond) exchange-traded funds (ETFs), which trade at dividend yields near 8%. Clearly, today’s income investor faces the dilemma of a debt bubble.

Even worse, fixed-rate bonds carry interest rate risk. Investing in bonds for income is very dangerous today because rate spikes can dramatically reduce the value of your investments, and inflation can dramatically destroy the purchasing power of your interest payments. Consider the iShares Barclays 20+ Year Treasury Bond ETF (NYSEARCA:TLT).TLT has an average effective duration of 15.25, which means that a 1% increase in interest rates would reduce the value of TLT by 15%. Ouch!

Domestic equity companies with dividends competitive with junk bond interest rates (8% or higher) were found among many sectors and types of securities. Two sectors with many top dividends were shipping and the telecom / wireless communications sector.

Below is a list of top dividend shipping stocks:

Extreme Dividends in Shipping

Ticker

Div Yield

Return on Equity

Country

Performance (Year to Date)

Beta

P/E (ttm)

P/B

FRO

15.6%

-2.5%

Bermuda

-69.4%

1.39

N/A

0.84

TNK

14.7%

4.1%

Bermuda

-41.0%

1.17

19.8

0.77

DHT

13.9%

8.3%

Channel Islands

-33.9%

0.86

8.2

0.71

CPLP

13.9%

6.1%

Greece

-25.6%

0.97

18.1

1

SBLK

13.6%

5.3%

Greece

-40.5%

2.17

3.6

0.19

GLBS

11.7%

6.5%

Greece

-36.3%

N/A

4.9

0.4

NMM

11.3%

11.9%

Greece

-14.0%

1.16

11.2

1.27

VLCCF

10.9%

12.0%

Bermuda

-11.8%

0.94

9.8

1.2

BALT

9.8%

N/A

USA

-48.8%

N/A

26.3

0.39

SFL

9.8%

16.8%

Bermuda

-22.7%

1.45

9.1

1.48

TNP

9.4%

-1.8%

Greece

-33.3%

0.83

N/A

0.29

SB

8.5%

38.3%

Greece

-15.5%

2.48

4.7

1.62

ISH

8.2%

8.8%

USA

-24.0%

0.72

6.1

0.52

Alternatively, high dividend yields were found among telecom and wireless communications stocks:

Extreme Dividends in Telecom and Wireless Communications

Ticker

Div Yield

ROE

Country

Performance (Year to Date)

Beta

P/E (ttm)

P/B

PTNR

17.9%

181.9%

Israel

-42.5%

0.82

5.8

10.56

CEL

15.7%

338.8%

Israel

-28.2%

0.75

6.6

26.76

VIV

11.5%

21.6%

Brazil

39.6%

0.56

10.7

2.42

PT

11.1%

5.2%

Portugal

-13.6%

0.7

36.7

1.19

FTE

10.4%

10.8%

France

-5.0%

0.81

11.4

1.24

FTR

10.0%

6.1%

USA

-19.5%

0.75

46.8

1.51

TEF

9.6%

48.1%

Spain

-6.4%

1.01

6.7

3.17

TI.A

9.4%

1.9%

Italy

5.2%

0.96

N/A

0.56

NOK

8.9%

9.7%

Finland

-33.7%

1.51

13.1

1.35

CTL

8.2%

4.9%

USA

-20.8%

0.74

15.0

0.98

CNSL

8.2%

48.7%

USA

4.5%

1.04

18.2

9.3

Would either sector be appropriate for a risk averse fixed-income investor? Certainly, the shipping industry is not for the faint of heart. This industry is suffering a global oversupply of ships that makes the housing bubble look reasonable. Today, ships are being dry-docked, scrapped, and accepting unprofitable trips in their routes. What’s worse is that shipyards are poised to add as much as 40% to the global fleet (in terms of tonnage) in the next two years.

Is telecom any better? Yes. The top dividend Telecom stocks listed here have dropped less year-to-date: -10.9% versus the -32.0% drop in the highest dividend shipping companies. Moreover, these telecom stocks are more resistant to market swings, with a beta of 0.88, much lower than the 1.28 average of these high dividend shipping stocks. This is well worth the slightly lower 10.9% average dividend yield relative to shipping’s average 11.6%.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Extreme Dividends By Sector: Greater Safety In Shipping Or Telecom Stocks?