There is a whole world of income investments out there. And the options for income investors are increasing every year. As I mentioned in my previous post, I often use the US 10yr note as a proxy for alternative income investments. This is a great tool to simplify the investment process, particularly for valuing dividend stocks, but does not mean an income investor can ignore the expanding world of income alternatives.
In order to keep track of the income investing options available, I keep a table of alternatives with their respective prices and yields. This dashboard provides me with a snapshot of relative valuation among income investments and a starting point for further research in a particular investment. Here is the latest version of my dashboard.
One of the most important things to remember in looking at tables like this that compare yields across different investment classes (stocks vs bonds) is that income investing should still be about total return, not just current yield. So, when looking at stock yields and investor needs to add a dividend growth factor to determine total return potential. Bonds do not have income growth potential in the same way stocks do (income can rise through higher interest rates but at the direct expense of price). This list is by no means exhaustive and there are usually several alternatives for a given investment (JNK for HYG as an example) but its indicative of relative valuation. Also, don’t forget to consider the tax implications of a particular asset class.
I usually update this table at least once per quarter and keep the previous quarter’s data in the table to measure the relative changes in valuation. An upcoming project will be to figure out how to have a real time version of the table on the blog. That may take me some time to figure out.
I’ll use this dashboard as a source for other posts but right now one thing is obvious. Income investors are chasing yield because the ‘risk-free’ alternatives are paying close to nothing, in particular if you consider taxes and inflation. I don’t expect this to change any time soon due to the sluggish economy and the demographic changes in the US.
Are there other income alternatives I should put on my dashboard?
Full Disclaimer - Nothing on this site should ever be considered advice, research or the invitation to buy or sell securities. These are my personal opinions only.