Investors seeking greater income generation may turn to a number of alternative investments and exchange traded funds that can provide attractive yields.
For instance, investors who want to add a little more dividend into their mix can consider master limited partnerships, or MLPs. To qualify as an MLP, the companies pass through at least 90% of their income to investors, making the assets an attractive yield-generating investment.
Additionally, MLPs primarily deal with the distribution and storage of energy products, so their business model is less reliant on the commodities market since MLPs profit off the quantity of oil and natural gas they are able to move around. Consequently, MLPs have historically shown a weaker correlation to energy prices over longer periods as MLPs act more like energy toll roads, profiting on the volume of oil moving through their pipelines.
Investors have a number of yield-generating MLP ETF options available, such as the Yorkville High Income MLP ETF (YMLP) and the Yorkville High Income Infrastructure MLP ETF (YMLI) . YMLP shows an impressive 19.2% distribution yield and YMLI has a 9.19% distribution yield.
Both ETFs track Solactive indices. YMLI, though, refines its MLP approach to only include “infrastructure MLPs,” which are a subset of the MLP universe that earn a majority of revenue from the transportation and storage of energy commodities. In contrast, YMLP may include companies that also operate in exploration and production of energy, along with energy services and sale of energy.
Business development companies and sector-related ETFs, like the Market Vectors BDC Income ETF (BIZD) , are also a good source of income and a way to capture an expanding economy. BIZD has a 8.5% 12-month yield.
Many are looking into BDCs for their attractive yields as they are required to pay out at least 90% of interest income received in cash dividends. BDCs act as an alternative to bank loan debt, helping smaller companies grow and profiting off the investments. In an expanding economic environment, BDCs should also benefit from stronger domestic businesses. Additionally, since the debt is typically senior secured and set to float with interest rate benchmarks, there is diminished rate risk.
Additionally, preferred securities and related ETFs, like the Market Vectors Preferred Securities ex Financials ETF (PFXF) , also offer attractive yield opportunities. PFXF has a 6.26% 12-month yield.
Preferred stocks are a type of hybrid security that show bond- and equity-esque characteristics. The shares are issued by financial institutions, utilities and telecom companies, among others. Within the securities hierarchy, preferreds are senior to common stocks but junior to corporate bonds. Additionally, preferred stocks issue dividends on a regular basis, but investors are unlikely to enjoy capital appreciation on par with common shares. However, while preferred stocks provide investors with an attractive source of yields, the assets are vulnerable in a rising interest rate environment.
PFXF only follows non-financial preferred securities, but it includse a 34.1% tilt toward real estate investment trusts and the rest of the portfolio is comprised of utilities, industrials, and consumer names.
For more information on dividend-paying stocks, visit our dividend ETFs category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.