The 2024 Ultimate Guide to High-Yielding Investments

2023 witnessed a jaw-dropping turnaround in the bond market, transforming from a potential tragedy into an epic Treasury rally, offering a silver lining for income-hungry investors. 

But hold on, the plot thickens! As we peer into the crystal ball for 2024, a treasure trove of opportunities beckons, promising lucrative returns across various asset classes.

In a dramatic shift, Treasury yields underwent a rollercoaster ride – starting at a nerve-wracking 3.9%, briefly skyrocketing to 5%, and then plunging back to a year-end close of 3.85%. 

This topsy-turvy journey propelled the iShares 7-10 Year Treasury Bond ETF to an unexpected upswing, ending the year on a high note with a 3.9% gain. 

This extraordinary rally resonated across multiple fixed-income sectors, including municipals, mortgage securities, convertible bonds, and the often-overlooked preferred stock.

But here’s the twist – despite the euphoric year-end rally and the consequent dip in yields, yields across the board are significantly juicier than at 2022’s outset. 

Investors are now salivating over the prospects of snaring 2% to 5% yields on municipal bonds, a whopping 7% on junk bonds, a tempting 5.5% to 7% on preferred stock, a solid 3% on convertibles, and a consistent 4% across the Treasury curve. 

The message is loud and clear: it’s not the time to hit the sell button.

“Keep your eyes on the prize with bonds,” advises Ed Perks, the mastermind behind the Franklin Income fund. 

With corporate bonds dishing out an average yield of around 5%, and the junk market promising an appealing 7.5% yield against a stable credit backdrop, the bond market is like a gold mine waiting to be explored.

But wait, there’s more! 

Cash has made a glamorous comeback, with Treasury bills boasting yields over 5%. 

Even with expected rate drops, cash remains a formidable asset class, outpacing the current 3% inflation rate.

However, the real showstopper could be dividend stocks. 

Despite lagging behind the S&P 500 index’s staggering 26% total return in 2023, these yield-rich sectors, like consumer staples and utilities, are primed for a comeback. 

With yields ranging from 5% to 8% on pipeline companies, 7% on telecoms, 4% on electric utilities, 3% on leading staples, and 4% on real estate investment trusts, these stocks are not just income-generating machines but also poised for potential price appreciation.

According to Barron, 2024 is the year to bet big on high-dividend stocks, both in the U.S. and internationally, along with pipelines and electric utilities. 

However, caution is advised for municipal bonds after a significant yield drop in recent months.

Here’s a rundown of the twelve income-generating sectors ripe for the picking:

  • U.S. Dividend Stocks: Poised for a spectacular year after a mediocre 2023. Look out for funds like the Vanguard High Dividend ETF and Schwab US Dividend Equity.
  • International Dividend Stocks: A haven for high dividend yields, with ETFs like iShares International Select Dividend offering a mouth-watering 6.5% yield.
  • Energy Pipelines: After a stellar 21% return in the Alerian MLP ETF in 2023, the sector is set to continue its winning streak.
  • Utilities: Bouncing back from a lackluster 2023, with industry leaders like Duke Energy and Southern Co. offering around a 4% yield.
  • Telecoms: AT&T and Verizon Communications, with yields around 7%, are a bargain at seven to eight times projected 2024 earnings.
  • Convertible Bonds: A balanced blend of stocks’ upside and bonds’ downside protection, these securities delivered a 13% return in 2023.
  • Real Estate Investment Trusts: Set to rebound after a 13% return in 2023, with the Vanguard Real Estate ETF yielding about 4%.
  • Mortgage Securities: A smart alternative to Treasuries and corporate bonds, with funds like the iShares MBS ETF yielding around 3.5%.
  • Junk Bonds: After a robust 2023, expectations for 2024 might need tempering, but the iShares iBoxx $ High Yield Corporate Bond ETF remains an attractive option.
  • Preferred Stock: Offering yields comparable to corporate bonds and tax benefits, with ETFs like the iShares Preferred & Income Securities yielding 6%.
  • Municipal Bonds: Still a favorite despite a recent rally, with ETFs like the iShares National Municipal Bond offering around a 3% yield.
  • Treasuries: Back to square one after a volatile year, with ETFs like the iShares 20+ Year Treasury Bond offering exposure to various maturity sectors.

As we enter 2024, these sectors present a smorgasbord of opportunities for the savvy investor. 

Whether you’re after high yields, capital appreciation, or a bit of both, there’s something for everyone in this dynamic financial landscape. 

Get ready to dive in and reap the rewards.