Finally, Some Good News For Income Investors In 2023…
At last, the winds of change are blowing.
It has been a tough slog for income investors. I’m not talking about last year’s vicious stock market pullback (that was rough on everyone). I’m talking about the pervasively low-yield environment that has turned dollars of interest into pennies.
Great for Nasdaq 100 (Nasdaq: QQQ) investors, but a real challenge for yield hunters like us.
Over at High-Yield Investing, the absolute minimum payout for portfolio eligibility is 4.0%. Always has been. That hurdle wasn’t too hard to meet when the newsletter was launched back in 2004. Heck, you could get it on a risk-free IOU from Uncle Sam. But since the financial crisis of 2008 (and with a reinforcing shot during the pandemic), the benchmark Fed Funds rate has been anchored at historically low levels to stimulate growth. Until recently, it hovered somewhere between 0.0% and 0.25%.
In turn, yields on fixed-income securities have been pinned down. The influential 10-year Treasury note bottomed near 0.5% in 2020 before rebounding back above 1.0% in 2021.
There was a brief period when government-backed bonds across Europe somehow dropped into negative territory.
Good luck building a nest egg with that.
Corporate debt hasn’t been much more inviting. AAA-rated issuers could borrow money for a rock-bottom 2.9% this time last year. Average junk bond coupons promised just 4.6%. Everywhere you looked, yields were somewhere between paltry and anemic.
Munis. Preferreds. Convertibles.
And that’s for longer-duration instruments. Needless to say, shorter-term cash equivalents have been offering considerably less. Not that long ago, my bank money market account was paying 0.30%. On a $100,000 balance, that would generate the princely sum of $25 in monthly interest. This has been a nightmare for retirees attempting to draw a decent income stream from their portfolio.
Thankfully, the “zero-point-something” era is over. You can probably find banks all over town advertising CDs for 3.0% or better… rates that seemed almost unthinkable a couple years ago. My money market is now dishing out more in a month than it used to in a full year.
That’s what happens after seven straight Fed rate hikes.
This aggressive tightening cycle has made life difficult for homebuyers and other borrowers. The interest rates on my son’s student loans have quickly doubled from 5% to more than 10%. But for savers, this sea change couldn’t happen soon enough.
And if 3% is the baseline, then loftier payouts (which had become quite scarce) are now back in reach. How lofty? Well, let’s just say that the 6.8% average yield in the High-Yield Investing portfolio is likely headed higher.
That being said, 10% is still a bit of a stretch. While there are exceptions, most double-digit yielders you’ll run across come with serious red flags. It has been more than two years since I’ve found a suitable candidate for our portfolio that yields more than 10%.
With that being said, there is no good reason why we can’t find yields that are two… three… even four times the market average. As we speak, the average market yield is 1.7%, and there are no shortage of good portfolio candidates out there paying at least 6.8%. Many of our holdings over at High-Yield Investing fit the bill, and they will have more company soon.
In the meantime, I’ve just released a list of “bulletproof” high yield picks for 2023 (and beyond)…
If you’re tired of settling for the paltry yields being offered by most stocks, and don’t want to take on a lot of risk, my team and I are here to help. I urge you to check out my latest research report, which goes into more depth about some of my favorite picks and how to put them to work for you today.