Even Warren Buffett is exasperated by the search for income in today’s low-rate world. “Fixed-­income ­investors…face a bleak future,” he admitted in a recent annual report from his company, Berkshire ­Hathaway. Relatively safe investments such as US Treasuries and corporate bonds yield well south of 4%—many closer to 1%—and are likely to lose money over the next decade if sold ­before their maturity dates. The S&P 500 Index recently yielded 1.39%, its lowest in two decades. Many investors have not changed their income-­generating strategies in the hope that yields will normalize, but that seems unlikely. The Congressional Budget Office projects that the 10-year US Treasury won’t be back above 3% until 2030.

Better: There are thousands of much higher-yielding investments to choose from if you’re willing to take on varying levels of risk including greater share-price volatility and inconsistent payouts. These investments range from an ­adjustable-rate bond fund to an ETF that weights its holdings by the size of their dividend yields. Bottom Line ­Personal asked five top investment ­experts for their favorite picks with yields above 3%…5%…and 8%.

Yields More Than 3%

These investments typically offer consistent dividend distributions and less volatility than the broad stock market. You needn’t watch them too c­losely because losses are unlikely over long periods.

Fast-growing blue-chip utility. In the next decade, the clean-energy movement, power demands of electric vehicles and a decline in renewable energy costs will transform the utility sector, lowering operating expenses and fueling faster earnings growth. My favorite now…

American Electric Power (AEP) is one of the largest utilities in the US, providing electricity generation and distribution to five million customers in 11 states. AEP has paid a ­dividend every quarter since 1910. Over the next 10 years, it expects to roughly halve its use of coal to generate electricity, replacing it with clean energy, including solar and wind power. Recent yield: 3.28%. Recent share price: $88.65.

Travis Miller is an equity strategist at Morningstar Inc., Chicago, which tracks more than 620,000 investment offerings. Morningstar.com

Dividend-weighted exchange-­traded fund (ETF). When ETFs search for stocks and allocate assets, they ­prioritize the size of a company’s dividend yield and how fast that yield is rising. This often leads them to “value” stocks—mature, slow-growing ­businesses in the financial, energy and industrial sectors. Owning these ETFs requires patience because they often lag in overall performance in growth-oriented markets. My favorite now…

Invesco High Yield Equity Dividend Achievers ETF (PEY) holds about 50 stocks that have increased annual dividend payments for at least 10 consecutive years. It allocates the most assets to the highest dividend yielders, creating an eclectic portfolio ranging from AT&T and International Business Machines Corp. to regional bank Northwest Bancshares and insurer Mercury General. Recent yield: 3.69%. Performance: 13.1%.*

David Snowball, PhD, is publisher of MutualFundObserver.com, an independent mutual fund analysis website that tracks 36,000 investment products.

Adjustable-rate bank-loan fund. Bank loans are bondlike securities that major banks make to companies with lower-quality credit ratings. Risk is limited because interest payments on these short-term loans don’t have a fixed rate as traditional bonds do. Instead, bank-loan payouts typically reset every 30 to 90 days, adjusting upward as interest rates rise or downward as rates fall. Bank-loan funds do best in environments like the current one with a strengthening economy and a remote chance of interest rate cuts by the Federal Reserve. My favorite now…

Fidelity Floating Rate High Income Fund (FFRHX) takes a diversified, conservative approach. It invests in more than 400 loans and makes sure that the companies making interest payments have solid balance sheets and generate plenty of cash flow. Recent yield: 3.46%. Performance: 3.6%.

Robert M. Brinker, CFS, is editor of the newsletter Brinker Fixed Income Advisor, Littleton, Colorado. ­BrinkerAdvisor.com

Yields More than 5%

These investments offer fairly consistent distributions but incur significant volatility.

Closed-end fund (CEF). A CEF can hold a wide mix of income-producing investments. They operate similarly to ­traditional actively managed mutual funds with a few differences. They sell a fixed number of shares when they launch and then trade like stocks on an exchange. Because their share prices can vary with supply and demand, CEFs sometimes can be purchased for less than the value of the fund’s underlying holdings (known as “net asset value”). Important: Many CEFs offer high dividend yields because they use option strategies and “leverage,” which is borrowing money at short-term interest rates to fund purchases of longer-term debt. Highly leveraged CEFs could suffer if prevailing interest rates spike, but that’s unlikely in the current environment. My favorite now…

Calamos Convertible Opportunities and Income Fund (CHI) holds a mix of convertible bonds, which are corporate bonds that could be converted to the issuer’s stock at a predetermined price level, as well as nonconvertible bonds and preferred stocks. The fund’s shares recently sold at a 0.6% discount to its net asset value. Its leverage ratio of borrowed money is about one-quarter of its total assets, which is average for CEFs. Recent yield: 7.6%. Performance: 11.3%.

Harry Domash is publisher of the website DividendDetective.com and author of Fire Your Stock Analyst! Analyzing Stocks On Your Own.

Mortgage real estate investment trust (REIT). Like most REITs, a mortgage REIT pays no federal income tax because it distributes nearly all of its ­income as dividends to shareholders. But instead of owning traditional real estate, a mortgage REIT invests in specialized financial products, borrowing money to buy government-issued securities backed by bundles of residential mortgages (­mortgage-backed securities). Profits are made on the difference between the interest earned from the securities that the REIT owns and the interest it pays on borrowed money. Mortgage REITs thrive when the housing market is strong and interest rates on short-term loans are low. Biggest danger: If interest rates rise quickly, it pushes up the costs of borrowing money, and mortgage REITs often have to cut dividends. My favorite now…

New Residential Investment (NRZ) has more than $30 billion in mortgage-related assets. It also earns revenues by providing services such as collecting mortgage payments and dealing with defaults. Recent yield: 7.74%. Recent share price: $10.34.

Robert M. Brinker, CFS.

Yields More Than 8%

In order to get yields this high, you need to invest in more speculative companies that require close surveillance. During economic downturns and bear markets, there is a large risk for dividend cuts and loss of capital.

Energy master limited partnership (MLP). MLPs trade like stocks and ­operate like corporations, but they avoid corporate taxes by passing their income through to investors in dividends. Most MLPs are energy-pipeline companies, storing and transporting crude oil and natural gas, which produce large, consistent cash flows. In 2020, investor aversion to the energy sector hammered pipeline operators. But this year, energy prices are rising and demand is strengthening, allowing MLPs to expand their pipeline networks and increase distributions. My favorite now…

Magellan Midstream Partners (MMP) is the largest MLP in the US with about 12,000 miles of pipelines and the capacity to store 100 million barrels of gasoline and diesel fuel. It has raised its distribution almost every year since its 2001 initial public offering. Recent yield: 9.02%. Recent share price: $45.59.

Vitaliy Katsenelson, CFA, is CEO and CIO of Investment Management Associates, Greenville, Colorado, and author of Active Value Investing and The Little Book of Sideways Markets. IMAUSA.com

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