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?
5 Comments
J Carroll · January 14, 2011 at 9:44 am
Paul, that’s a great board. One area not covered is closed-end funds, especially high-yield CEFs. I own PHF and PHK; both took big hits during the crash but mostly kept paying dividends throughout, and they have both come back to about pre-crash levels.
libertatemamo · January 14, 2011 at 11:28 am
Hey J. I tried to cover a piece of the closed end fund space with an muni example, BFK. The CEF spaces is pretty broad, I may need a section just to cover some of the bigger funds. There are some CEF indexes published, by First Trust for example, but quotes on them are not readily available. At least none that I’ve found. I should do a CEF post soon to explain what they are and some of the common pitfalls and opportunities in the CEF space.
Thanks for the feedback.
Paul
Jim OConnor · January 14, 2011 at 10:11 pm
Nice dashboard. I like preferred stocks for income since you can pick ones which are qualified for the 15% dividend rate, which is not such an issue now for 2 years, but I do not like the preferred etfs. Too many of the issues in the etfs are well over call prices; it hasn’t been a problem yet but I suspect it will be. JMHO. Happy new year.
Jim OConnor
libertatemamo · January 15, 2011 at 10:26 am
Jim, agree with you on preferred ETFs. Actually, most, if not all, ETFs have similar issues. One of the reasons I don’t use funds or ETFs to invest. But they are a great way to track industry, sector, and asset class valuations and trends.
Income investor dashboard – feb 2011 update « Investing For A Living · February 4, 2011 at 2:51 pm
[…] investor dashboard – feb 2011 update Last month I introduced my income investor dashboard that helps me keep tabs on the investment landscape from an income investor’s point of view. […]
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