Go for the dough: Stock and bond dividends are high now

By
USA Today
December 17, 2008, 3:48 PM ET
3 min read

— -- Q: What is a good way to invest so I get dividends? I'd like the money to last for at least eight to 10 years.

A: It's a great time to be an income investor.

If you're willing to shoulder some risk, there are unheard of opportunities to earn income. But you might want to expand your horizons beyond stock dividends. There are some other opportunities for income that might provide more stability and safety.

Clearly, stock dividends are an option. The Standard & Poor's 500 index, for instance, has a dividend yield of 3.3%, which is its highest since 1990. If you exclude the 124 companies that do not pay a dividend, the yield is more than 5%. That's a return that rivals what high-quality corporate bonds would have paid last year.

There are some easy ways to invest in companies that pay dividends. The SPDR S&P Dividend exchange-traded fund sdy lets you buy all the companies in the S&P High Yield Dividend Aristocrats index. This index includes 50 of the companies with the highest and consistently increasing dividend payments. There are other options, including Vanguard's High Dividend Yield ETF vym, Vanguard's Dividend Appreciation ETF vig and a number of WisdomTree ETFs such as the WisdomTree Total Dividend Fund dtd.

But an income investor shouldn't stop with stock dividends. Corporate and municipal bonds are offering yields at mind-blowing levels. And there are ETFs that expose you to these historic yields. The iShares iBoxx$ Investment Grade Corporate bond ETF lqd buys bonds with the highest credit ratings and is yielding more than 6%. Both iShares and Vanguard offer a number of municipal bond ETFs that will help you get an even higher after-tax return. You can find them here.

If you're willing to do even more homework, consider preferred stock. Preferred stock is unique in that it gives you a perpetual stream of income, like a stock dividend, but with higher, more bond-like yields. If you're interested, start by reading this.

Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Click here to see previous Ask Matt columns.