Your idea of an ideal retirement is probably different than the next person’s idea, but everybody has the same need in getting there: plenty of income. While a little bit of your portfolio should be invested in growth even as you reach your retirement years, you’re going to want the majority of your investments to throw off some kind of regular income while keeping your nest egg intact. That makes finding quality high-yield investments paramount.
After all, if you can bring in a high yield on your investments, that’s less you’ll need to sell from your retirement holdings.
Plus, a substantial dividend yield can act as a cushion in market downturns, limiting losses that can severely cut into everything you’ve saved.
While many investors associated high-yield investments with high risk, there are a number of stocks, exchange-traded funds (ETFs) and other investments that can deliver solid dividends without putting your money in peril.
Today, we’ll explore seven of the best high-yield investments — including several different asset classes and covering various parts of the globe — for retirement investors.
Best High-Yield Investments for Retirement: Total SA (ADR) (TOT)
TOT Dividend Yield: 5.3%
Investors typically will find significant dividends among the large, integrated oil companies. Their expansive and diversified asset bases make them great plays no matter what energy prices are doing. For instance, you’ll almost always see U.S. multinational Exxon Mobil Corporation (NYSE:XOM) listed as a great stock for retirement.
But you can do pretty well overseas, too.
France’s Total SA (ADR) (NYSE:TOT) is about a third as big as Exxon Mobil in market capitalization ($125 billion) but still features a number of assets around the world, spanning major oil fields, pipelines and refining capacity. Those assets have been performing better than many of its peers as of late, which is why it has handled the recent oil downturn so well.
Sensing trouble ahead, Total’s management cut capital expenditures early on and completed projects just before oil prices crashed. That reduction in spending allowed it coast through the malaise with ease. As a result, Total’s cash flows didn’t suffer nearly as much as many of its peers.
That was ideal for TOT stock holders, many of whom rely on the 5%-plus dividend.
Of course, with oil on the rebound, Total’s dividend is even more of a high-yield value. And TOT has more than proven that it’s willing to take the safe route to preserve the business and its income stream to shareholders.
Best High-Yield Investments for Retirement: VanEck Vectors Fallen Angel High Yield Bond ETF (ANGL)
ANGL Dividend Yield: 5%
Expenses: 0.35%, or $35 annually for every $10,000 invested
Most investors are familiar with “junk” debt — it’s low-rated debt that typically results in a company facing higher borrowing costs and bigger coupon payments on their bonds (thus, higher yield for investors).
“Fallen angels” are companies whose ratings have just dipped from investment-grade into junk status.
For retirement investors, these fallen angels can be an opportunity to pick up higher yield without as much risk. That’s because the difference between the lowest tier of investment-grade and the highest tier of junk is basically negligible.
The VanEck Vectors Fallen Angel High Yield Bond ETF (NYSEARCA:ANGL) is the only ETF that bets on these types of bonds. The $570 million ANGL holds 239 different bonds, three-quarters of which sit in BB (the top tier of junk) category, and about 20% of which have a B rating.
By betting on this segment of junk bonds, investors can enjoy a 5% yield while investing in debt that’s much higher than that of broader junk funds — thus, less risk of default and losses for investors.
ANGL has returned 9.3% annually since its inception in late 2012.
Best High-Yield Investments for Retirement: Nuveen Municipal Value Fund (NUV)
NUV Dividend Yield: 4%*
One overlooked aspect of quality retirement investments is tax-efficiency, and that’s where municipal bonds can flex their muscle.
Muni bonds are free from federal — and in some cases, state and local — taxes, making them an excellent way to reap income without having to worry about the IRS.
The Nuveen Municipal Value Fund (NYSE:NUV), a closed-end fund (CEF), takes those benefits one step further. CEFs are similar to ETFs in that they hold assets such as stocks and bonds, and they trade on an exchange, just like a stock. The primary difference is that a closed-end fund has a fixed number of shares, so they tend to trade around a net asset value.
Right now, NUV and its 440 municipal bonds currently trade at a slight discount to NAV, so you can buy a dollar worth of bonds for roughly 96 cents.
*Where this gets interesting is that while NUV’s monthly dividend comes out to a yield of 4%, the tax-equivalent yield is actually much higher. Someone in the highest tax bracket would have to bring in about 7% of yield before taxes to score NUV’s 4% in after-tax yield.
Best High-Yield Investments for Retirement: Enterprise Products Partners L.P. (EPD)
EPD Dividend Yield: 5.9%
Master limited partnerships (MLPs) are a popular asset class among income investors. As pass-through entities, MLPs kick-back much of their cash flows to investors as dividends — often hefty ones.
The fall in energy prices showed that MLPs — most of which are businesses tied to energy transportation — aren’t all alike, and they all aren’t safe investments.
But Enterprise Products Partners L.P. (NYSE:EPD) is one of the best in breed.
EPD is one of the largest midstream and energy logistics firms in North America and features a huge asset base that includes nearly 50,000 miles worth of pipelines, storage farms, various natural gas processing plants, export/import terminals, barges … you name it.
Enterprise Products Partners makes money based on the volumes of energy that flows through its system, rather than on underlying commodity prices. And as EPD continues to expand and see rising demand for its pipelines, investors in the MLP are treated to continuously growing distribution payments.
EPD, which currently yields nearly 6%, has managed to raise its split-adjusted payout by more than 400% since its IPO in 1998.
Best High-Yield Investments for Retirement: iShares International Select Dividend ETF (IDV)
IDV Dividend Yield: 4.5%
International stocks can not only be a fruitful path to higher yields, but you can diversify your portfolio this way, and without taking on much extra risk, either.
The developed world is home to plenty of multinational giants. If you don’t drive a Honda (NYSE:HMC), you know someone who does, and you almost certainly use at least one Unilever (NYSE:UL) consumer product in your home.
Many international large-caps are very similar to U.S. large-caps in that they’re multinational in nature, deriving their revenues from all across the world. Thus, in one respect, British Unilever isn’t all that different from American Procter & Gamble Co (NYSE:PG).
And many of these international large-caps pay substantial yields.
The iShares International Select Dividend ETF (NYSEARCA:IDV) tracks a basket of 97 foreign stocks from developed-market countries including France, Germany and Japan. The ETF weighs the stocks by dividends paid and uses screens to make sure the fund is invested in well-established, high-quality internationals. There are no fly-by-night names in here.
These stocks combine to yield well more than 5%, and the 0.5% expense ratio, while not super-cheap, is certainly affordable.
Best High-Yield Investments for Retirement: Brookfield Infrastructure Partners L.P. (BIP)
BIP Dividend Yield: 4.4%
Institutional love infrastructure investing, and it all comes down to two words:
Owning and operating toll roads, pipelines, water treatment plants and other vital pieces of infrastructure typically means you’re throwing off plenty of inflation-resilient cash to shareholders. That’s something retirement investors can use as well.
The best way to add these sorts of assets is another MLP, Brookfield Infrastructure Partners L.P. (NYSE:BIP).
Spun-off from Canada’s Brookfield Asset Management Inc. (USA) (NYSE:BAM), BIP is one of the world’s largest owners of infrastructure assets in the world. That spans 31 different core infrastructure business in utilities, transportation, energy and communications sectors.
These assets are tied to very long contracts that allow BIP to siphon off cash flows at a steady clip, which in turn funds a dividend that has increased 57% in the past five years.
Best High-Yield Investments for Retirement: Guggenheim Multi-Asset Income ETF (CVY)
CVY Dividend Yield: 5%
Considering just how many ways there are to score high yield, one of the simplest ways to introduce high-yield investments to your portfolio is to buy a fund that owns a little bit of everything.
Enter the Guggenheim Multi-Asset Income ETF (NYSEARCA:CVY).
The CVY, which boasts about $400 million in assets under management, tracks a basket of high-yield holdings — everything from common stocks to real estate investment trusts (REITs) to CEFs to preferred stocks. The goal is to craft a portfolio that has a higher yield than the stock-focused Dow Jones U.S. Select Dividend Index. CVY has succeeded for much of its history, and today’s blend of 150 securities yields a healthy 5%.
CVY has been a decent performer, producing about 5.2% in total returns annually over the past five years. While the return picture is murkier a little further out — over the past decade — note that the ETF followed a different index and focused even more on high yield. Today, the fund is about high risk-adjusted yield and better diversification.
As of this writing, Aaron Levitt was long NUV.