Från utdelningsaktier till fonder – placeringarna som ger högst avkastning i år

From Treasuries to REITs and MLPs, there are plenty of places to find generous dividends and yields.

From Treasuries to REITs and MLPs, there are plenty of places to find generous dividends and yields.

The first six months of 2024 have been tough for income investors, but the second half of the year should be a whole lot better.

The bull case starts with the Federal Reserve, which is expected to cut short rates at least once this year. When that happens, it could prompt a rally in the bond markets and send cash back into fixed income. The European Central Bank and the Bank of Canada have already lowered their benchmarks, which should also boost the sector.

“Central banks are starting to cut rates, and that is an important backdrop for performance,” says Anders Persson, chief of fixed-income investments at Nuveen.

Inflation, too, has slowed, with the consumer price index running at just over 3% and perhaps headed lower. That makes income opportunities look even more attractive. “For the first time in a decade, there are positive real yields in the market,” says Paul Malloy, the head of municipal bond investments at Vanguard, referring to yields after adjusting for inflation.

Even dividend-paying stocks could do better. Income-rich sectors like energy, utilities, and banks are up around 10% this year, but trail the 15% gain in the S&P 500 index . Real estate investment trusts have fared poorly, while energy pipelines stood out with 15%-plus returns. But these groups could post strong performance if the tech stocks that have dominated the market in 2024 finally start to waver.

So where should investors look for income?

In bonds, consider mortgage securities, preferred stock, and Treasuries of all varieties—regular, inflation-protected, and short-term issues. Municipal bonds look good, but not great, given current yield spreads relative to Treasuries. Corporate debt, including high-yield bonds, is less appealing, with yield spreads at historically tight levels relative to Treasuries.

In the stock market, investors can get 3% to 4% yields on a range of sectors including utilities, REITs, banks, energy, and consumer products. Even after a big rally, energy pipelines yield 5% to 8%. Pockets of high yield also remain among individual stocks such as Verizon Communications , at 6.5%, and Altria Group, at 8%.

Sure, current bond yields of more than 4% aren’t going to make investors ecstatic, especially those who recall the 7% yields on Treasuries in the 1990s. Persistently high budget deficits—now running at $2 trillion annually—and a cautious Fed could keep rates elevated for longer. But they’re a lot better than they used to be. Here’s a look at 11 sectors of the stock and bond markets.

There’s a lot to like about Treasuries. They’re supersafe and carry yields of 4.25% to 4.75%—comfortably above the 3.3% inflation rate over the past 12 months.

Unlike other bonds, they can’t be redeemed, or called, before maturity, an underappreciated attribute. While many long-term municipals and corporates can be called before maturity, limiting their upside potential, Treasuries can appreciate a lot if rates fall sharply. The 30-year Treasury, now yielding 4.4%, should generate a 20% total return over the next year if rates fall one percentage point.

Individuals can buy Treasuries through the Treasury.gov website or at banks and brokerages, often without paying a fee. Exchange-traded funds are a good alternative, offering liquidity, monthly income, and transparent pricing. The largest Treasury ETF, iShares 20+ Year Treasury Bond, yields 4.4%. Investors can get a higher yield with less interest-rate risk in the iShares 1-3 Year Treasury Bond ETF, at 4.7% with a two-year average maturity.

Treasury inflation-protected securities, or TIPS, offer a nice alternative to regular Treasuries. Real yields are around 2%, meaning investors get a two-point premium above the CPI. If inflation rises, which would hurt most bonds, TIPS should benefit.

The “break even” inflation rate on most TIPS is about 2.2%, considerably below the recent 12-month CPI inflation rate of 3.3%. If inflation averages 3% in the next decade or longer, investors will earn better yields on TIPS than regular Treasuries.

So far this year, TIPS are beating regular Treasuries. The iShares TIPS Bond ETF, with an average maturity of about seven years, has returned about 1% against negative 1% on the iShares 7-10 Year Treasury Bond ETF. TIPS ETFs like Vanguard Short-Term Inflation-Protected Securities, with a three-year average maturity, carry similar yields with less price risk.

Investors may want to hold TIPS in tax-advantaged accounts since they generate phantom income. The inflation component of TIPS return is added to the price of the bond—and not paid in cash—but is taxable to holders.

Don’t abandon cash. Short rates may head lower later this year, but that shouldn’t dim the appeal of Treasury bills, which now yield about 5.3%. Rates should remain above 4% deep into 2025.

T-bills offer better yields than most money-market funds and are exempt from state and local taxes, unlike most “government” money funds, which own more than just Treasuries.

Available through the Treasury.gov site and via brokers and banks, T-bills are sold at a discount from face value, with interest paid at maturity. Maturities range from four weeks to one year. Increasingly popular T-bill ETFs like SPDR Bloomberg 1-3 Month T-bill and iShares 0-3 Month Treasury Bond yield 5.3%.

One of the biggest fans of T-bills is Warren Buffett. The Berkshire Hathaway CEO has stashed over $150 billion of the company’s cash in T-bills, or about 3% of the total T-bills outstanding.

The mortgage market has never appealed much to individual investors, a mistake considering its attractive yields and gilt-edged credit quality.

Agencies Ginnie Mae, Fannie Mae, and Freddie Mac account for $9 trillion of securities. Ginnie is government-backed, and while Fannie and Freddie don’t have explicit guarantees, they probably wouldn’t be allowed to fail—the feds stood behind their debt during the financial crisis.

Mortgage securities yield between 5% and 6%, better than most investment-grade corporate bonds. The “spread” between agency mortgage securities and Treasuries, at 1.5 percentage points, is historically wide. 

Funds are the best option given the complex cash flows. The iShares MBS and Vanguard Mortgage-Backed Securities ETFs have a current yield of about 4% and a yield to maturity of more than 5%. They hold older, low-rate mortgages with smaller current yields but greater potential appreciation if rates fall. The newer Simplify MBS ETF holds newer mortgages and yields over 5%.

Active managers can add value. Jeffrey Gundlach’s DoubleLine Total Return Bond fund, which yields about 6%, invests in higher-yielding nonagency mortgages that carry more risk than agency issues.

The bondlike securities issued mostly by banks have bested most parts of the fixed-income markets this year. The iShares Preferred & Income Securities, the largest ETF, has returned about 4%.

The $300 billion market has been supported by shrinking supply as banks have redeemed about $5 billion net of new issuance. Yields are down a half percentage point or more from October 2023 peaks but still clock in between 5.5% and 7%. 

Much of the new issuance—and some of the better yields—is in the so-called institutional preferred market. Citigroup issued $1.75 billion of preferred at 7.125% in May in the sector, which is traded over the counter like bonds. The retail market consists of $25 preferreds from issuers like JPMorgan Chase and Wells Fargo that trade like stocks on the NYSE and often yield less than 6%. Regional banks yield more. A recent 7.5% preferred from regional M&T Bank yields about 7%,

The iShares Preferred ETF focuses on the $25 market, while the First Trust Institutional Preferred Securities & Income ETF buys institutional issues.

Higher-dividend stocks are a nice complement—or substitute—for bonds. While the S&P 500 yields just 1.5%, there are plenty of places to get double that rate. Where to look? Regional banks like Comerica and U.S. Bancorp have lagged behind the megabanks this year and yield 4% to 6%, while consumer giants PepsiCo and Coca-Cola yield 3%, as do Target and Johnson & Johnson. Chevron yields 4%. 

There are dozens of dividend-oriented ETFs. One of the largest is the $54 billion Vanguard High Dividend Yield, which yields 3.5% and whose largest holdings includes JPMorgan, Broadcom, and Exxon Mobil.

Yield abounds abroad, where companies tend to favor dividends over stock buybacks. BP yields almost 5% and Honda Motor, 4%, while Nestlé and Danone clock in at 3%. British American Tobacco, owner of Reynolds cigarettes, yields 9% and benefits from British stocks having no dividend withholding taxes for U.S. investors. The Schwab International Dividend Equity ETF yields 4.4%.

The $32 billion Vanguard Real Estate ETF, which yields 4%, is down 5% in 2024 and is trailing the S&P 500 for the fourth year in a row. But REITs are also one of the more attractive places to find income. 

Formerly hot warehouse REITs like Prologis are down double digits in 2024 and yield 3.5% amid greater supply. Cell-tower REITs have cooled as well, with industry leader American Tower, whose shares are little changed over the past five years, yielding 3.5%. Apartment REITs like AvalonBay Communities, Equity Residential, and Camden Property Trust are up an average of 10% this year. They yield around 4%.

Sunbelt-focused companies like Camden and Mid-America Apartment Communities have rallied as investors look past a spate of new supply that may crest next year as higher rates crimp building activity. Coastal operators like AvalonBay are more protected due to tough zoning rules and land shortages. 

Energy pipelines are having their third strong year in a row, with the Alerian MLP ETF returning over 15%. 

Greg Reid, the head of energy investments at Westwood, cites “strong and improving fundamentals, dividend and volume growth, and declining leverage.” The energy transition doesn’t seem to be crimping demand for fossil fuels.

Partnerships like Enterprise Products Partners and Energy Transfer yield more than corporations like Williams and Kinder Morgan because of investor preference for simpler corporate structures and 1099 tax forms rather than K-1s. Yields range from 4% to 8%. Williams has been a standout due to its focus on natural gas, which is benefiting from rising demand for liquefied natural gas.

Former bond king Bill Gross has been a big fan of the partnerships. “I think they’ve sort of peaked out in terms of price appreciation, but the yields [look solid], assuming there aren’t any disasters in terms of energy and pipeline regulatory measures going forward,” he told Barron’s in May.

The Utilities Select Sector SPDR has gained 8% after being little changed over the past five years. Credit the artificial-intelligence boom.

U.S. electricity demand, which has been flat for about 15 years, could grow 3% annually through the end of the decade due in large part to demand from power-hungry data centers that support AI applications.

AI demand could lift annual earnings growth for many utilities to about 7% for the next decade from earlier estimates of 4% to 6% yearly growth, says Jay Rhame, co-manager of the Reaves Utility Income closed-end fund, while dividends could expand at a similar clip. “The industry will need to build a lot of new power plants,” he says.

His favorites include Southern Co., Pennsylvania’s PPL, and NiSource, which is based in Indiana and recently signed a $1 billion deal with Microsoft to power data centers. They yield about 3.5% and are getting a lift from AI-related demand.

Munis have high credit quality, limited net new supply, and upside potential from higher federal tax rates if the Trump tax cuts aren’t extended past next year. Unfortunately, the highest-quality munis with 10-year maturities and shorter yield less than 3%, or 65% of the Treasury yield. The long-term average is closer to 80%.

Muni fans say that lower-quality bonds remain appealing, as do long-term bonds, which yield about 4%. “The fundamental credit quality is as good as it has been in decades,” says Vanguard’s Malloy.

The total municipal bond market stands at $4 trillion, up about 10% in the past decade, while the amount of Treasury debt is up more than 50%, to $27 trillion.

There are plenty of ways to play—ETFs, traditional mutual funds, closed-end funds, and separately managed accounts. Individual bonds used to be a favorite of many retail investors, but securities firms are encouraging financial advisors to steer clients toward managed products.

The Janus Henderson AAA CLO ETF has been an innovative success story among bond ETFs. It buys the top-rated tranches of collateralized loan obligations, or CLOs, which are backed by bank loans to leveraged companies. 

The yield on the Janus Henderson ETF is 6.7% and floats at about 1.5% above a key short rate. That’s a nice yield for a high-quality fund and it has grown to over $10 billion since its inception in 2020, with much of it coming in the past year.

The $300 billion closed-end fund market offers opportunities because most funds trade at discounts to net asset value, many at double digits below NAV. The small $50 million Matisse Discounted Bond CEF Strategy navigates well among fixed-income closed-end funds and has returned nearly 7% this year. The 2024 performance reflects a narrowing of discounts in the sector and security selection.