Bonds or Dividend Stocks? Do Both With These Investing Options

If you’re hunting for reliable income in this choppy market, dividend stocks and high-yield bonds could be your best bets right now. With President Trump’s pro-energy policies firing up infrastructure and rates potentially easing, these assets scream value.

Quick Read

• Enbridge raised dividends for 31 consecutive years with a sustainable 74% payout ratio on cash flow.

• TLT is a top bond ETF investors can add for portfolio stability and long-term security.

• SCHD returned 15% year-to-date while maintaining a 57-60% payout ratio across dividend growth companies.

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With that in mind, here are three smart options to juice your portfolio, backed by rock-solid fundamentals.

Enbridge (ENB)

Enbridge (NYSE:ENB) is a top dividend stock I view as a quasi-bond proxy in this market. I think that’s one of the reasons why this particular pipeline giant has seen its share price soar over the course of the past year, particularly as interest rates have been on the decline.

Once a perennial 6-7% dividend stock, Enbridge’s current dividend yield is now around 5.4%. That drop is indicative of the surge this energy infrastructure giant has seen in terms of investor interest, with billions of dollars of capital flowing into this sector once again. I think the rise in oil prices we’ve seen following this increased geopolitical environment (mainly around the Middle East) should bolster demand for Enbridge stock for the foreseeable future.

Now, these sorts of cycles do play out, and the question many investors will have is what will ultimately come when the dust settles from these conflicts. That said, the reality is that Enbridge’s revenue and cash flows are closely tied to long-term volume contracts, which actually limits exposure to oil prices over time. Thus, while rising oil prices should be beneficial on this front with any contracts that are renewed in the coming months and quarters, the reality is that this is a stable cash cow worth considering in any environment, in my view.

20+ Year Treasury Bond ETF (TLT)

In the world of fixed income ETFs, the 20+ Year Treasury Bond ETF (TLT) remains one of my top picks in the market right now.

This ETF provides investors with exposure to a market-weighted basket of U.S. Treasury bonds with remaining maturities greater than 20 years. Thus, investors can think of the ultra-safe, long-dated government debt from the likes of 2% to 4.75% coupon issues. With interest rates on the decline, this ETF which was launched in 2002 by BlackRock and holds around 47 securities is one I think long-term investors can own for sleep-at-night exposure to the market (which is becoming increasingly difficult to find).

With an expense ratio around 0.15% and a dividend yield north of 4.4%, I think locking in those yields now (and benefiting from potential capital appreciation as interest rates come down, which is my base case) is a smart move. I think this fund’s long duration mix could provide a big boost for investors looking for interest rate sensitivity in such a declining rate environment.

Additionally, for investors worried about a sever correction or market crash tied to recessionary concerns, TLT is a great place to hide out. Earning a guaranteed 4.4% yield while waiting out near-term turbulence in equities may fit many risk-averse investor profiles well.

Schwab U.S. Dividend Equity ETF (SCHD)

For hands-off exposure to dividend stocks, the Schwab U.S. Dividend Equity ETF (SCHD) is among the top dividend ETFs I think are worth considering right now. Indeed, this is one fund which makes up a significant portfolio position for me, thanks to its high-quality dividend growth holdings.

With a 3.5% dividend yield and a rock-bottom expense ratio of just six basis points (0.06%), this is an ETF which provides some of the broadest exposure to dividend stocks at the most favorable valuations. Additionally, the way in which this ETF is structured (with a focus on quality) ensures investors are in only the best-quality names in the market. In today’s environment, I’d argue quality matters more than in a long time.

With an overall portfolio payout ratio below 75% and solid dividend growth (a little more than 4% a year historically), this is an excellent ETF for investors looking for total return and capital appreciation compounding over time. I think SCHD is among the best diversified dividend ETFs in the market, and this is a holding I’ll continue to pound the table on as interest rates continue to come down over time.

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