Do your research. And as always, remember, diversification is paramount.

Convertible securities

Convertible bonds share many of the same characteristics of corporate bonds, with one exception: If you own them, you have the option to convert your holdings into a predetermined number of shares of the company’s common stock.

Because of this, the underlying bond participates in some in the upside appreciation of the common stock and retains a degree of downside protection due to the bond floor (the value of the bond without the conversion option of the equity). With the 30-year Treasury bond yielding under 1.4% and the yield on the S&P 500 at 2.05%, convertible securities can provide a viable income option.

Convertible preferred securities are often combined with convertible bonds to enhance yield. They also enhance volatility because the securities are more sensitive to the movement in the common stock. Together, however, they provide an interesting source of income with an equity price performance kicker.

I reviewed a number of convertible bond/preferred stock ETFs (exchangetraded funds) and found the funds generally provided a yield greater than 5% and year-to-date returns better than the S&P 500.

Covered calls

Covered calls are a little trickier but can also provide enhanced income. Writing a covered call is a contract selling the right to purchase a stock you own at a specific price and a pre-determined time frame. The primary benefit is the additional income generated by the call premiums. While you can implement the strategy in your own portfolio, it requires vigilant management. Again, there an abundance of ETFs and mutual funds to choose from.

Each of these strategies comes with unique risks and rewards and should represent only a portion of your overall allocation if in line with your risk and reward objectives.

Do your research. And as always, remember, diversification is paramount.