8 Treasury Bond Alternatives for Investors Who Need Income in 2019 and Beyond

Jon C. Ogg

While these were extremely popular in years past, the prices of MLPs in general have suffered with the price of energy in recent years. It is rather easy to find yield equivalents of 5%, 6% and higher in this group, but the price drops have burned many investors over the years. Rather than taking on individual risks about the infrastructure operation of just one partnership, and to avoid very difficult tax filings, there are billions of dollars worth of closed-end funds tracking MLPs, and there are ETF options as well.

6. Dividend Aristocrats (And Then Some)

Everyone knows income investors love dividends, but companies that grow their dividends year after year tend to be rewarded more or are considered safer than companies that overextend themselves by paying out too much income in the form of dividends. An index called the S&P 500 Dividend Aristocrats is made up of U.S. companies in the S&P 500 index that have raised their dividends for a minimum of 25 years in a row. These companies have proven, even during the Great Recession, that they know how to keep dividend payments going through good times and bad. After all, there have been three U.S. recessions since 1990.

As of July 2019, 57 were companies listed as “aristocrats” and the yield is currently close to 2%. Assuming equity prices rise over time as they always have, the future effective yield at any given day’s purchase price will be higher as these dividends are raised. To go one step further, there is also a smaller list of companies that have raised their dividends for at least 50 consecutive years despite the having been seven U.S. recessions since 1969.

7. Real Estate Investment Trusts

Real estate investment trusts, or REITs, have to pay out a minimum of 90% of their income to their holders to avoid double-taxation. These generally are expected to make money as landlords by owning and leasing real estate, but there are many types of REITs, such as mortgage-backed securities REITs, which earn income investing in mortgages. There are also apartment REITs, senior care and health care REITs, and REITS tied to leasing offices and facilities to government-run entities.

REITs often pay higher yields than other fixed-income markets. They may come with risks that investors do not understand or would want to avoid. In the cannibalization of malls and shopping centers as e-commerce has risen, how well can investors expect landlords to retailers will fair in the next recession? And how well would hospital and other health care REITs do if the U.S. health care system is socialized?

8. Preferred Securities

Some investors want income without the volatility of the stock market, and that can lead investors to preferred shares rather than common shares. These generally come with fixed rates, and the preferred shares are not last in line like common shareholders in the capital structure (in case of bankruptcy or liquidation). While they are not considered as safe as corporate bonds, investors can still find yields of 5% or better here without the perceived risks of common stocks.

While many banks had to suspend common dividends, suspending a preferred dividend generally is considered the same as a corporate default. The iShares Preferred and Income Securities ETF yields almost 5.5% on last look, and just about every large bank has individual preferred shares that should offer high yields.