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'Cash Cow' Investing: Finding Yield in 2012

"They just upped their dividend last quarter. And if you are looking at the political situation, if Mitt Romney wins, they are probably going to increase defense spending again. And if Obama wins, he doesn't want to be seen as a weak president going into this election, so we probably won't see that many cuts going forward," says Wong.

Another way investors can tap into yield is through fixed-income ETFs. "The fixed-income ETF market has grown tremendously -- there's more than $180 billion in the market now," says Matt Tucker, head of iShares Fixed Income Strategy. "So investors have the option now to choose from a number of fixed-income sectors to really dial in the amount of yield and risk they want to take in the market."

Municipal bonds have long been a favorite among yield-seeking investors. But with cities across the country and states like California struggling to balance their budgets again, have munis lost their appeal?

Not necessarily, says Tucker.

"The reality is that states and other municipalities do have a lot of tools at their disposal for cutting back spending, for raising taxes, for making sure they can pay their debts," Tucker says.

While the iShares S&P National AMT-Free Municipal Bond Fund (MUB) was beaten down during 2010, Tucker says it had a strong resurgence in 2011. "You're still seeing muni spreads trading at wide levels, or higher yields than Treasurys. So for a lot of investors who are taxable, it still can be a good place to put your money."

Another popular source of yield are Treasury Inflation-Protected Securities, or TIPS. These Treasury-issued notes rise in value along with inflation, as measured by the Consumer Price Index (CPI).

"It's one of the only investments that actually pays you for inflation. So if there's inflation in the actually get paid in the form of a distribution of income," says Tucker.

While the rate of inflation has slowed in recent months, even falling to negative 0.2% in December, "TIPS are still a very popular asset class," Tucker says. The Federal Reserve last month announced it will hold interest rates at or near zero until late 2014, which could prove inflationary.

The $22 billion iShares Barclays TIPS Bond Fund (TIP), considered the "grandaddy" of TIPS funds, delivered investors a total return of more than 15% over the past 12 months, and has averaged an annual return of 10% over the past three years.

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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.
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INTC $28.64 0.00%
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SO $47.91 0.00%
TIP $111.60 0.00%


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