Another strategy to unlock Wall Street’s potential.
In an age of ultra-low interest rates, income-oriented investors are having a tough time. The dividend yield of the Standard & Poor’s 500 index is just 2 percent right now. And the 10-year U.S. Treasury bond doesn’t offer much more at just a 2.2 percent yield. If you’re looking for a bigger income stream — or, if you’re just looking for a better annual return to help your nest egg grow without the risk of market volatility — then stop tinkering with conventional dividend stocks and bonds. Unlock the real income potential of Wall Street by tapping into these five high-yield ETFs that each offer yields of more than 5 percent.
PowerShares REIT ETF (ticker: KBWY)
The PowerShares KBW Premium Yield Equity REIT Portfolio is a diversified way to play the popular trend of real estate investment trusts. REITs are a special kind of publicly traded company that is given tax breaks on real estate holdings as long as the corporation returns 90 percent of its taxable income to shareholders. That all but guarantees big dividend payouts to shareholders. But how do you decide which REIT is right for you? Thankfully, with KBWY you don’t have to. Just buy this diversified real estate play and enjoy annual payouts more than three times 10-year Treasurys.
Yield: 7.6 percent
Year-to-date return: -1 percent
ETRACS Wells Fargo Business Development Company Index ETN (BDCS)
This is an interesting investment for yield seekers. That’s because business development companies operate as a kind of investment fund, taking debt and equity investments in mid-size firms. The typical BDC offers big payouts to shareholders, based on the interest payments on debts issued and profits made from their equity investments. And since the ETRACS ETN holds dozens of these BDCs, you can tap into the income-producing power of these investments but with much less risk. After all, even if one BDC makes a bad loan, you have dozens of others to keep paying you. Note: BDCS is an exchange-traded note, not a fund, but functions just like an ETF.
Yield: 8 percent
YTD return: -6 percent
SPDR High Yield Bond ETF (JNK)
The SPDR Bloomberg Barclays High Yield Bond ETF provides investors access to high-yield corporate debt, or “junk bonds.” As the moniker suggests, junk bonds are typically loans to lower-quality companies that don’t always have the brightest future. That means there’s clearly some risk here. But the good news is that a diversified portfolio of these bonds allows you to tap into the higher yields of the space but also avoid putting all your eggs in one basket. Even if a few loans sour, on balance the fund should do just fine.
Yield: 5 percent
YTD return: 2 percent
iShares U.S. Preferred Stock ETF (PFF)
The iShares U.S. Preferred Stock ETF invests exactly in what it sounds like — preferred stock of U.S. corporations. A kind of hybrid between stocks and bonds, preferred stock typically offers a bigger stream of income than conventional dividend stocks and less volatility than common stock. The only thing to be wary of is that preferred stock is a preferred way among banks to access additional capital, so this fund actually has more than half its assets in financial institutions. But the heavy weighting toward the sector may be worth it for investors seeking bigger yields.
Yield: 5.3 percent
YTD return: 8 percent
Alerian MLP ETF (AMLP)
The energy sector has been in a world of hurt over the last few years, and the Alerian MLP ETF has seen trouble, too. In fact, this year the fund is down by double digits despite the rally across the broader stock market. But if you’re comfortable with energy exposure, you won’t find a better place to seek yield than in master limited partnerships — or MLPs. This special class of company treats shareholders as profit-sharing partners, meaning a mandate for big-time payouts.
Yield: 7.8 percent
YTD return: -11 percent
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5 ETFs Yielding More Than 5 Percent originally appeared on usnews.com
