It is one of the most popular and time-tested stock market investment strategies. It is dividend growth investing, or DGI, which is a strategy that focuses on companies that consistently increase their dividend payouts each year, supported by the predictable long-term growth of earnings per share. The recent success of this strategy, coupled with the yield-starved zero interest rate environment over the last several years has attracted scores of new dividend growth investors, both young and old. But with so many newcomers to the strategy, it raises an important question. While you may have fully bought into the approach over the last few years, are you a true dividend growth investor? And are you truly ready to not only withstand, but capitalize on the potential risks that may lie ahead.
One key characteristic more than any other defines the true dividend growth investor. And it is a factor that many
The zero interest rate policies (ZIRP) by the FED have hurt investors and savers, causing them to flee into higher yield bonds. Lured in by the higher yields investing in risky debt, investors have poured over $80 bn into US "high yield bonds" since the start of the emergency policies by the FED, causing damage to the internals of the financial markets by the vast mispricing of illiquidity in these "high yield" markets.
For the past five years, few asset classes have been chased as much as the high yield junk bonds by low rated companies. Prices have gone up and yields have gone down. In fact, the name "high yield" is beginning to look outdated looking at the returns on higher risk debt. Data from Barclays shows the average yields on junk bonds ("high yield" bonds) reached a record low of a miserable 4.82% in June, miles
I want to share some words of caution for the high yield market in general, comments that will apply whether you're getting your exposure through a mutual fund, ETF or ETN. The second part will address a handful of specific ETFs and their individual issues.
High Yield is a sub segment of the fixed income market represented by bonds that pay higher coupons and have lower credit ratings than investment grade corporate bonds. The idea is you're willing to take on the higher risk because you earn a higher return.
Let's start by looking at the historical data. Looking at a long period of time (2000 - 2014, the longest data set I could find). The iBoxx High Yield Index has annualized at 5.9% vs. the Barclays Aggregate Index at 5.7%. So returns have been similar. What about risk, well if you look at the two indices today, the iBoxx