As I'm sure you are aware, Federal Reserve Chairman Ben Bernanke is absolutely adamant about going into a deflationary spiral and backs up his word by saying that rates will stay at the ultra-low 0-.25% rate for at least another two years. That's fantastic for borrowers, but absolutely hammers the savers and people reliant on a fixed income using CD's, savings accounts, and other secure forms of fixed savings. Therefore, I think it's wise and actually necessary to search for a higher yield as the real return will eat into the prinicipal rather quickly as fuel, food, tuition for the kids and grandchildren, etc. grow at a far faster rate than the approximate 1% returns these common forms of savings give. Here's some Exchange-traded Funds (ETF's) and dividend paying stocks to consider:
1. I currently own the SPDR Barclays Capital High Yield bond ETF (JNK) and what really is enticing right away is its 8%+ dividend yield paid monthly. However, there is of course risk as the fund normally invests at least 80% of its fund in non-investment grade bonds, but I believe a person is getting paid very well for that risk when the spread is 600+ basis points above the 10-year treasury bond. Moreover, the underlying companies that sell these bonds are having right near record low defaults, even after the bleak economic times of the last four years, and the fund is well-diversified as demonstrated by their ten largest holdings only compromising just over 20% of the portfolio. The iShares High Yield Corporate Bond Index (HYG) has a very similar make-up as its yield is just over 8%+ paid monthly as well and well-diversified as well with their ten largest holdings only compromising just over 10% of the portfolio. I feel confident recommending them both to the long-term dividend seeker right here with JNK at $38.20/share and HYG at $86.50.
2. The iShare Select Dividend Index (DVY) is for the more conservative investor, but still gives a considerable 3.5% dividend yield paid quarterly. The fund simply looks to mimic the Dow Jones U.S. Select Dividend Index by having at least 90% of its assets in securities comprising that index, such as Chevron (CVX) and McDonald's (MCD), and is well-diversified as shown by their top 10 holdings compromising less than 25% of the total portfolio. I think this is a buy here at $50/share.
3. Some energy limited partnerships have caught my eye as their dividends look very generous and more importantly secure. Martin Midstream Partners (MMLP) currently is just below 9% and has been not only maintaining their dividend since going public in 2003, but raising it. That is a buy here at $35.50/share. Linn Energy (LINE), named after it's very competent CEO Michael Linn)has a fantastic management team who hedged almost all of their natural gas prices a few years back and therefore look to have a very secure 7.5%+ dividend going forward for the next few years. Their dividend has not only been maintained, but raised as well every year since going public in 2006. I think it's a buy at $37/share. At the beginning of 2011, the Canadian independent oil and gas producer, Enerplus (ERF), became a corporation and as such has different tax ramifications that, as always, should be consulted with your tax professional. Nonetheless, this monthly dividend payer has a yield just under 8% and while it has not raised it as consistently as the previous two mentioned, still looks secure with their strong free cash flow. This is a good buy at $28/share. Magellan Midstream (MMP) has the same, great consistent history of raising dividends since going public in 2001 and currently sports a 5.3% quarterly dividend. I would wait for the share price to drop and bring that yield to 5.5% before jumping in, translating to a $57/share price, but still offers some great value even at the current $59.50/share. Finally, I would be remiss by leaving the biggest one of them all, which also has great value, Enterprise Products Partners (EPD). Since going public in 1998, has not only kept, but raised its dividend consistently and now sports a yield just under 6%. This is a buy here at $40.50/share.
4. Investors Real Estate Trust preferred stock (IRETP) (IRET) was issued by Investors Real Estate Trust back in 2004 at a par value of $25/share. It simply pays a fixed quarterly dividend of $.516, which at the time of issuance translated to 8.25% annual dividend yield. It has since moved up to $26.20, but is so thinly traded that has wild swings in prices, and even at that price is still a 7.9% yield for preferred stock, which of course gets priority in the very remote chance of a bankruptcy for the parent company. I think this is a buy at $26/share. I would recommend its parent company as it had consistently raised its dividend a very respectable 40 years before this last quarter when it not only didn't maintain but cut its quarterly dividend from $.172 to $.13/share. It currently yields over 7% and am currently long myself, but this article is regarding straight dividend investors rather than focusing on capital appreciation down the line, so I have to go with the preferred.
As always, the tax ramification are worth checking with your tax professional as, even in a tax-free or tax-deferred account, you still may be subject to income tax per the current laws regarding Schedule K-1 tax forms.
Disclosure: I am long JNK, IRET, IRETP.