After a broad global rally in stocks and bonds, income-oriented investments offer fewer opportunities than they did a year ago.
So investors will need to lower their expectations. But there are still places to look for yield on a range of stocks and bonds. And income will be welcome if markets turn more volatile.
This is Barron’s eighth annual assessment of the income-producing parts of the financial markets. We assess 12 sectors and rank them in order of preference for 2020.
Our record last year was mixed. Energy pipelines were our top pick, and they finished near the bottom of the pack. Electric utility stocks fared much better than we had projected.
Yet the still-depressed group of energy pipelines remains a favorite for 2020. Here, investors can get yields ranging from 5% to 9%.
High-yielding stocks globally, meanwhile, can be a good alternative to bonds.
Real estate investment trusts still offer some opportunity after a robust run in 2019, with dividend yields averaging close to 3.5% and more than double that in the depressed mall sector. Less appealing are Treasuries, preferred stock, and tax-free municipal bonds.
Here are the 12 sectors:
Investors are cool to most everything related to fossil fuels, including energy pipeline operators. That makes these investments outliers in a yield-parched world. They provide some of the stock market’s highest dividends—5% to 9%—as well as appreciation potential if they come back into vogue.
Industry leader Enterprise Products Partners (ticker: EPD), at $28, yields 6.2%, while Kinder Morgan (KMI), at $21, yields 4.7%. Energy Transfer (ET), at $12, is the least liked major pipeline operator and yields nearly 9%. The J.P. Morgan Alerian Index MLP exchange-traded note (AMJ), which tracks the Alerian MLP index, now yields 8%.
As more companies convert to corporations, pipeline operators are no longer synonymous with master limited partnerships. Many investors prefer corporations because they don’t generate the hated K-1 tax forms that MLPs do and appeal to a broader investment audience.
“The U.S. needs energy infrastructure, and global energy demand should continue to grow; the sector is undervalued,” says Rob Thummel, a portfolio manager at Tortoise Capital Advisors, which invests in the sector.
He’s partial to Williams Cos. (WMB), Enterprise Products, and Magellan Midstream Partners (MMP). Also worth a look: Closed-end funds such as Kayne Anderson MLP/Midstream Investment (KYN) and Tortoise Energy Infrastructure (TYG), which yield 10% or more.