Dividend-paying stocks aren’t for widows and orphans anymore, and, for that matter, neither are Treasury bonds. As income-seeking investors know all too well, generating meaningful yield nowadays means accepting greater market risk and volatility. Investing for income has become so challenging, it may be creating more widows and orphans than it saves. Buyers nowadays face a Hobson’s Choice that forces them to hold their noses and plunge.
Yet one income strategy is capturing the attention of investors and investment advisers alike: Swapping inflation-protected Treasurys, or TIPS, for dividend stocks yielding 3% or more. Dividend stocks provide income, but they’re stocks all the same. In the 2008 market meltdown, SPDR S&P Dividend, an exchange-traded fund made up of top-drawer dividend stocks, lost 23% while the benchmark Standard & Poor’s 500-stock index fell 37%. So if you pursue this strategy, your portfolio will become more volatile, and you’ll have to be proactive about risk management.
Source: Market Watch
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