Alternative income strategies
It would be nice if we could earn 6 percent per year in the bank or investing in AAA municipal bonds, but unfortunately we can’t in today’s low interest rate environment. The notion that interest rates will remain relatively low for the foreseeable future seems to be gaining acceptance.
The following investments could, however, be of interest to those looking for yield.
High Yield bonds have a lower credit rating than investment grade bonds, but they pay higher interest than investment grade bonds.
Preferred stocks typically pay a fixed dividend, which is often significantly higher than that of common shares. Preferred stock also ranks senior to common shares in case of a corporate bankruptcy. For those concerned with potential rising interest rates, some “fixed to float” preferred stocks have dividends that increase if interest rates increase once the fixed period expires.
Mortgage REITs loan money for mortgages to owners of real estate, or purchase existing mortgages or mortgagebacked securities. Their revenues are generated primarily by the interest that they earn on the mortgage loans. These REITs make loans secured by real estate, but they do not generally own or operate real estate. Mortgage REITs can offer fairly high yields.
Master limited partnerships (MLPs) are typically related to the processing and transportation of oil and gas, and they tend to produce steady cash flows during times of stable or rising energy prices. Although MLPs are subject to industry specific risks, if oil prices remain stable, that would bode well for MLP investors.
There are several other investments that can be utilized to create attractive yields. If you are looking for higher yields, you should discuss with your adviser whether high yield investments are suitable for you and if they are consistent with your objectives.