Don’t settle for skimpy bond yields and make dividend stocks your best income play, fixed-income veteran says

With interest rates at record lows, income-seeking investors who were used to relatively safe bond investments with decent yields have to look elsewhere.

The distorted bond market has been described as a “borrower’s paradise and a fixed-income investor’s hell” by Mark Grant, the chief global strategist for fixed income at B. Riley FBR, even as he agrees that the Federal Reserve had no choice but to lower the federal funds rate and push bond yields lower by purchasing securities to help spur an economic recovery.

The risk for corporate bonds is obvious: Default and bankruptcy because of sharp decreases in revenue and cash flow, during the COVID-19 clampdown. For municipalities, the risk is from declines in tax revenue. Bond-rating firms “are giving municipalities a longer runway before they downgrade,” Genter said.

A downgrade doesn’t necessarily mean investors will suffer. Then again, with low interest rates pushing bond prices so high, investment-grade yields aren’t attractive. The S&P Municipal Bond Index has a “yield to worst” of only 1.34%, according to FactSet. Yield to worst is the yield to the earliest retirement date for a bond. For corporate bonds, the Bloomberg Barclays Aggregate Bond Index has a yield to worst of 1.16%, according to FactSet.

Genter said that he and his team select from all stocks listed on U.S. exchanges, with an emphasis on a good history of paying and growing dividends, with no cuts for at least five years. New positions must have dividend yields of at least 2.5%, well supported by free cash flow.

Banks are always a great and safe investment. 11% annual return, plus a 4% dividend! Way better than IRAs.

Skimpy you mean negative real ? Hahahaha

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