Here’s an excerpt from my contribution:
It’s a strange time to be an income investor. Most government bonds in the developed world actually sport negative yields. And even those in positive territory — like U.S. Treasuries — don’t yield enough to make them worth considering.
But more fundamentally, bonds — even in a normal rate environment — aren’t really your best option as a long-term income vehicle.
Bonds are tax-inefficient, as all of your income returns are taxed as current income at your marginal tax rate. And unless you’re buying TIPS, there isn’t an inflation adjustment. Your income from the investment doesn’t grow, whether you own it for 10 months or 10 years.
A better option for long-term investors would be a good portfolio of dividend stocks. Yes, stock dividends are less secure than bond interest. The bondholders always get paid first, and a company can cut its dividend at the whim of the board of directors if cash is a little tight. But you can mitigate this risk by diversifying across sectors and by keeping your exposure to any single stock modest.
Dividends are generally taxed at a more favorable rate than bond interest, plus — and this is the biggest selling point — healthy companies tend to raise their dividends over time. This keeps your income stream a step ahead of inflation.
Of course, the easiest way to get exposure to a diversified portfolio of dividend stocks is to buy a dividend ETF or a handful of dividend ETFs. Today, I’m going to give you five solid names to consider.
All have a slightly different approach to dividend investing, so buying a basket of these dividend ETFs is a smart move.