The yield on a 50/50 portfolio of stocks and bonds has never been lower.
Even though interest rates are off the floor, they’re still in the basement, historically speaking.
And so some investors are turning to dividend-paying stocks for a portion of their portfolio that was once reserved for bonds. This story was covered in Barron’s cover story over the weekend.
One of the nice things about dividend-paying stocks is that, well, they provide an income stream. Take ConEd for example, which is definitely just an example and not investment advice. The stock has yielded between 3 and 4.5% for most of the last decade.
The swing in yield is driven by a swing in price. That 4% coupon is nice, but the cost for it is stock-like pain. In March 2020, even this boring stock lost nearly a third of its value.
But the nice thing about dividend-payers is that they’re easier to hang onto if you just view the volatility as the cost of higher income. Stocks are violent, dividends are steady.
Josh and I are going to talk about this and much more on tonight’s What Are Your Thoughts?
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Michael Batnick is a managing partner at Ritholtz Wealth Management. He is the co-host of Animal Spirits, What Are Your Thoughts, and The Compound and Friends. For disclosure information please see here.