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Low interest rates have propelled stocks to soaring heights despite the recession caused by the coronavirus. That means it's both hard to find growth opportunity and yields in this market.
Hard, but not impossible.
I've scoured the markets to find the best high-yield dividend stocks that can add income to your portfolio right away.
And even if you're not an income-seeking investor, the benefits are too good to pass up. You see, this is an unusual time for markets.
There was a lot of talk over the last week about the potential for Treasury Bond yields to rise based on more optimistic growth forecasts.
Baked into part of that assumption was the potential for a Democratic sweep of both houses of Congress and the White House. The general idea is that this would lead to the passage of a more generous stimulus package.
That is probably true, but even if the Democrats do sweep, the new Congress is not sworn in until the first week of January. U.S. President Donald Trump would still have veto power until Jan. 20th. Any ultra-progressive stimulus package would not see the light of day until late January at best.
There is also the fact that stimulus spending is not growth. If you have an accident and surgeons think they have to cut off your leg but end up saving it through aggressive action, you did not grow a leg. The doctors saved your leg.
It is the same with the economy. We will not be back to pre-pandemic levels for a very long time. Fed Chair Jerome Powell has said on several occasions that interest rates will remain very low until at least 2023.
This will make it very difficult for investors to find the income they need to fund their retirement until at least 2023 and probably longer.
High dividend stocks can be part of the answer. The question can be which ones should we buy.
How about if we just buy a lot of them? Even better, how about if we buy a whole bunch of them for about 16% less than most investors will pay for these stocks?
That could work too.
A High-Yield Dividend Fund
Dividend Yield: 7.6%
The Miller/Howard High Income Equity Fund (NYSE: HIE) can help us do just that.
Unlike regular mutual funds, which create and redeem shares as needed, closed-end funds sell a fixed number of shares and trade on the major exchanges. This exposes their value to the whims of the psychological soup we call the stock market.
When funds are popular, they may trade for more than they are worth. We call that a premium of net asset value.
When funds are underfollowed or out of favor, they can trade for less than the value of the stocks and bonds they own.
That's the case with the Miller/Howard Equity Income Fund right now. Most investors and traders are focused on big-name tech stocks and paying very little attention to dividend-oriented funds. This fund is trading for 16% less than the value of the stocks the fund owns right now. The dividend yield is 7.6% right now.
The dividends are paid monthly, so the Miller/Howard Equity Income Fund can be our version of a Paycheck Replacement Plan.
We can do the same thing with real estate investment trusts. REITs are not as popular as they were at this time last year. COVID-19 has hit commercial real estate pretty hard, and it can be confusing to figure which sectors and which individual REITs will survive the pandemic.
CBRE Clarion Securities is a global investment manager specializing in real assets.
It is a division of CBRE Group (NYSE: CBRE), a commercial real estate services and investment company that has been in business since 1906.
It has dealt with wars, recessions, depressions, and yes, global pandemics. It has a pretty good idea of how properties will perform when the current pandemic has passed.
Get Monthly Dividends with This REIT Fund
Dividend Yield: 9.6%
The confusion surrounding REITs and the post-pandemic world has caused most investors to shun REIT funds.
Right now, the CBRE Clarion Global Real Estate Income (NYSE: IGR) is trading at a discount of 18.5% to the actual market value of the diversified portfolio of REITs the fund currently owns.
The fund is currently yielding 9.6%, and the dividends are paid monthly.
Preferred stocks can be a great way to collect a high-income stream as well. Rather than learn all the complicated terminology of preferred stocks and learning how to evaluate each issue, we can turn to professionals to manage a portfolio of these income producing securities.
We can also use a closed-end fund to build a portfolio at a discount, but it will not be a huge discount. Preferred stock funds have proven themselves to be a safe, reliable way to earn a high income without much volatility.
Preferred stock funds will not make you rich in a short period of time
They will, however, help you stay rich for a very long time.
They will also send you a nice fat check every month.
The First Trust Intermediate Duration Preferred & Income Fund (FPF) is trading at a discount of almost 5% from the value of the securities the fund owns right now. These funds rarely go to huge discounts as no one wants to sell a stable source of high income.
In times of great turmoil in the market, they often trade at a premium because demand is high.
The current yield is 7.3% and is paid monthly.
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About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, and consultant with degrees from Northwestern, Johns Hopkins, Purdue, and Indiana University. He is a seasoned financial and political risk analyst, with a focus on stocks, hedge funds, private equity, blockchain, and housing policy. He has conducted risk assessment projects for clients in 27 countries, and consulted on policy and financial operations for some of the nation's largest financial institutions, including a $1.5 trillion credit fund, a $43 billion credit and auto loan giant, as well as two of the largest Wall Street banks by assets under management.
Garrett joined Money Map Press as an economist and researcher in 2011, specializing in alternative strategies with an emphasis on fundamental and technical analysis.