By comparison, the stock dividend ETF holder would still be looking at a 12% loss today. Also, high yield bonds have fully recovered from the bear market, and an investor who has held the HYG fund since it started trading in April 2007 would now have a gain of 31 percent. As an example, compare the performance of a typical high yield bond ETF to a stock dividend ETF:Īs you can see, the stock dividend ETF (DVY) lost almost twice as much of its peak value during the most recent bear market: a 63 percent maximum drawdown from peak to trough, compared to -33% for the HYG high yield bond fund. ![]() This was true even during the most recent global economic recession. This brings us to the second point: stocks are significantly more volatile and risky than high yield bonds. But of course these last two choices would subject you to the additional risk of investing in international stocks, which are typically more risky than their U.S. A better alternative may be to invest in an ETF that holds them, such as the SPDR S&P International Dividend Fund (DWX), which offers a current yield of 6.82 percent, and the iShares Dow Jones International Select Dividend Index (IDV) which currently pays 5.22% per annum. It’s not practical for a typical investor to own a bunch of individual international stocks. One way you can boost the yield in equities is by looking abroad. From there it becomes less attractive: 3.17% for the SPDR S&P Dividend (SDY), 2.88 percent for the Vanguard High Dividend Yield Index ETF (VYM), and a meager 2.09 percent for Vanguard Dividend Appreciation ETF (VIG). ![]() The highest yielder of the bunch is currently iShares Dow Jones Select Dividend Index (DVY) with a trailing 12 month yield of 3.44 percent. stock dividend ETF choices reflect this fact. dividend stocks to currently yield no more than about 3.5 percent. Unless you venture out into speculative stock territory, you can expect a portfolio of relatively stable, high quality U.S. Compare this to investing in a basket of dividend stocks. Both of these funds have high annual yields: 7.50% for JNK and 6.80% for HYG. ![]() There are two good candidates: SPDR Barclays Capital High Yield Bond Fund (JNK) and iShares iBoxx High Yield Corporate Bond Fund (HYG). For example, an easy way to invest in high yield bonds is to buy an Exchange Traded Fund (ETF) that invests in them. Let’s take a look at how these two very different investments compare.Īn investment in high yield bonds will almost always give you a higher source of dividend income than dividend stocks. But due to the persistent low interest rate environment, aging investors have more and more turned to both dividend stocks and high yield bonds as a source of fixed income for their retirement. Investors know that stocks are very different from bonds.
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