I’ve got an investment idea for you. How about you loan me money and 10 years from now I will give your money back, less than one-half percent per year. But, no worries, it’s guaranteed. You will lose exactly one-half percent per year: no more, no less.
Not interested. Well that is exactly what investors in 10-year German bonds have signed up for. These German government-guaranteed bonds yield a NEGATIVE .5%. Or, crazier yet, Swiss government 10 years lose you just shy of 1% per year. In fact, worldwide, there is currently $15 trillion worth of negative-yielding debt held by “investors.”
Who would invest with a guarantee to lose money, you ask? Great question. The answer…uh…I have no answer. It makes no sense to me. It would be better to put money under a mattress.
If you are looking for guaranteed government bonds, consider yourself blessed that you live the United States of America. Our 10-year yield north of 1.6% is fat and juicy by comparison to most developed countries. This week, our 30-year bond came within a whisker of its all-time low yield of 2.1%. I personally think investing for 30 years at 2.1% is borderline psychotic. But hey, it’s better than negative 1%.
So, where do you go to get a decent interest rate? If the title of this article caught your eye, you undoubtedly want this question answered. I’ll give you my best ideas starting with the safest investments first.
Money markets and CDs are essentially no risk. Fidelity’s money market yields 1.89%, better than 10-year Treasuries. The State Employees Credit Union has a 5-year CD for 2.65%, besting the yield on 30-year Treasuries. I’m sure other money markets and CDs are similar, so shop around for the best guaranteed rate.
If you are willing to take some risk, you can do a lot better. Preferred stocks are issued by many companies, especially banks, as a way to keep debt off their balance sheets. They pay a fixed dividend, higher than their common stock dividend, but do not increase it. PFF and PGF are symbols of two Exchange Traded Funds that invest in a diversified basket of these preferreds and yield 5.6% and 5.4% respectively.
If you aren’t afraid of stock market volatility, the banking sector offers growing dividends. Wells Fargo pays out a hefty 4.3% and recently raised its quarterly payout from .45 to .51. BB&T yields 3.7% and has raised its quarterly payout form .27 in 2016 to .45 today.
And that’s a huge difference between U.S. Treasuries and dividend stocks. Treasuries never raise their payouts. Many U.S. corporations increase dividends every year. Thus, your expected income grows over time and helps you keep up with inflation.
In the industrial area, I like International Paper and Dow Chemical at 5.0% and 6.3% respectively. But be warned, the current trade dispute with China is weighing heavily on industrial stocks.
Turning toward energy, Chevron Texaco yields 4% and Enbridge touts a whopping 6.8% annual dividend. Lower oil prices will hurt both of these names. And with Enbridge, buy it only in tax-sheltered accounts due to potential tax headaches stemming from its Canadian domicile.
Drug stocks generally offer reliable income and at 6.6%, I suggest you take a hard look at AbbVie. Spun out from Abbott Labs years ago, the drug maker has fallen on hard times lately, but the dividend looks safe. Even though AbbVie has more than doubled its dividend since 2015, I would expect the dividend growth to slow due to its slowing revenue growth.
One final idea from legendary manager, Jeffrey Gundlach of DoubleLine Funds. DoubleLine Income Solutions (symbol DSL) is a closed-end fund that uses 30% leverage to offer an 8.9% yield. This fund invests in all kinds of fixed income instruments including emerging markets debt.
Due to its go-anywhere approach and use of leverage, this fund will have volatile swings. It plummeted almost 20% in last December’s sell-off, but has since recovered completely.
These are just a few of the many investments that offer more yield than U.S. Treasuries. Do your homework before investing and enjoy the hunt.