This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Dividend Stocks Instead of Bonds

NEW YORK ( TheStreet) -- Frustrated with low bond yields, investors have been pouring into ETFs that focus on dividend-paying stocks. During the past year, Vanguard High Yield Dividend (VYM) recorded inflows of $2.6 billion, while iShares High Dividend Equity (HDV) attracted $975 million, according to IndexUniverse.com.

The rush into dividend stocks has left many financial advisors shaking their heads. According to the conventional view, all stocks are risky, including dividend stocks. Advisors warn that in the next downturn, dividend stocks could sink along with the rest of the market. For protection, investors should hold sizable stakes of government and high-quality bonds.

Noted Princeton professor Burton Malkiel takes a different view. Malkiel is urging clients to shift from government bonds into dividend stocks and other assets. "The old saw is that government bonds are the safest investment in the world," he says. "But these days government bonds are risky."

Malkiel recently became chief investment officer of Wealthfront, an advisory firm that designs low-cost ETF portfolios for clients who have a minimum of $5,000 to invest. The firm recently changed its portfolios, eliminating government bonds and increasing the allocation to dividend-paying blue chips.

Malkiel is best known as an early proponent of index fund investing. In his 1973 bestseller, A Random Walk Down Wall Street, he argued that active fund managers had little chance of outdoing the market averages. Instead, he has urged institutions and retail investors to use index funds.

A former board member of Vanguard Group, Malkiel has often championed the company's low-cost stock and bond index funds. But these days he is cautioning investors about the use of Vanguard Total Bond Market (BND), a popular index ETF with $18 billion in assets. "The ETF has two thirds of its assets in government and agency bonds," he says. "That's a lousy investment now."

Malkiel argues that in the next decade, bonds are likely to return nothing. The problem is that interest rates are bound to rise. When that happens, bond prices tend to sink. The coming bond bear market may not start this year or next, Malkiel says. For the time being, the Federal Reserve is holding down interest rates. But when the Fed begins loosening, rates will climb.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,122.03 +70.30 0.41%
S&P 500 1,984.32 +10.69 0.54%
NASDAQ 4,455.5980 +30.8940 0.70%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs