The Best, and Worst, High Yield Investment Today

Billionaire “Bond God” Jeffrey Gundlach just shared his favorite short idea at the Ira Sohn investment conference last Wednesday. Dividend investors take note – the high priest of fixed income just panned your longtime standby! Utilities aren’t safe, says Gundlach. Their valuations are stretched to the upside, and their yields are too low. So he recommends a pair trade that shorts the Utilities SPDR (XLU), which pays a meager 3.3% today:

A low yield can be OK if dividend growth is meaningful, but few utilities are boosting their payouts at a fast enough pace to compensate. Of XLU’s top five holdings, only two — NextEra Energy, Inc (NEE) and Dominion Resources, Inc. (D) — have boosted their dividends meaningfully over the last five years. Two more — Duke Energy Corp (DUK) and Southern Co (SO) — have barely adjusted their dividends for inflation. And Exelon Corporation (EXC) had to cut its dividend by 41% in 2013 after overextending itself to purchase Constellation Energy:

Source: InvestorPlace

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