It’s tough to be an income investor today. Yields have followed interest rates down, meaning investors looking for a reasonable amount of income from their investments have to buy assets deemed to be a little riskier.
One way for individual investors to mitigate this risk is to buy baskets of risky securities in ETFs.
The iShares Canadian Financial Monthly Income ETF (TSX:FIE) is a great choice for income investors. It invests in a basket of Canadian financial stocks (including preferred shares), using leverage to increase income. This ETF yields 7.2%, a very impressive number in today’s world.
Another way for investors to get great yields is the junk bond market. Individually, junk bonds are risky-- hence the name. But when you package them up in a group, much of that risk goes away.
The iShares U.S. High Yield Bond Index ETF (TSX:XHY) is one of the TSX’s largest junk bond ETFs with a market cap of nearly $600 million. It holds the debt of companies like T-Mobile, Ally Financial, and Tenet Heathcare. Approximately half of the ETF’s bond holdings mature within five years.
Based on the last twelve months of dividends, this ETF yields 6.3%. But since distributions have been slowly going down, investors should only expect a 5.6% payout going forward.
And remember, this ETF is Canadian Dollar hedged, which takes away any currency worries that might come from owning U.S. bonds.
