Three Strategies for Income Investors

With historically low interest rates, where can an investor turn to generate reliable income? CFRA Research highlights a portfolio strategy to generate monthly payouts; Weiss Ratings sees opportunity in dividend kings; and Fidelity Monitor & Insight discusses a variety of favorites among taxable bond funds.

Beth Piskora, CFRA Research's The Outlook

Investors looking for income from their investments generally want that income to be paid regularly throughout the year. To help investors accomplish this, we've grouped these 18 stocks according to the dates on which they usually pay quarterly dividends.

By purchasing just six of these issues -- one in each time slot -- you would receive two dividend checks per month.

We've gone one step further and identified exactly how many shares to purchase in order to receive monthly income of about $100. For example, you could buy 355 shares of First Horizon, 55 shares of JPMorgan Chase, 95 shares of AT&T, 50 shares of Magellan Midstream Partners, 170 shares of CenterPoint Energy, and 140 shares of Exelon.

At recent prices, this sector-diversified six-stock portfolio would cost $31,835 and provide annual income of about $1,200 for a yield of 3.8%, much higher than the S&P 500's recent 1.8% yield. All of the stocks are ranked 4-STARS (Buy) or 5-STARS (Strong Buy) by CFRA for expected above-average price appreciation in the next 12 months. This list is not tracked for performance.

(Editor's note: Below are each company's name, symbol and CFRA Research STAR rating, followed by each stock's recent yield as well as the estimated number of shares needed to generate monthly income of $100.)

EARLY JAN., APRIL, JULY, OCT.

Alexandria R.E. Equities ( (ARE) - 5-STARS) - yielding 2.5% (50 shares)

First Horizon National ( (FHN) - 4-STARS) - yielding 3.2% (355 shares)

Walmart ( (WMT) - 4-STARS) - yielding 1.8% (95 shares)

MID-JAN., APRIL, JULY, OCT.

Johnson Controls ( (JCI) - 4-STARS) - yielding 2.5% (190 shares)

JPMorgan Chase ( (JPM) - 4-STARS) - yielding 2.6% (55 shares)

Medtronic ( (MDT) - 4-STARS)- yielding 1.8% (95 shares)

EARLY FEB., MAY, AUG., NOV.

AT&T ( (T) - 4-STARS) - yielding 5.4 (95 shares)

Bristol-Myers Squibb ( (BMY) - 5-STARS) - yielding 2.7% (110 shares)

CVS Health ( (CVS) - 5-STARS) - yielding 2.6 (100 shares)

MID-FEB., MAY, AUG., NOV.

Apple ( (AAPL) - 4-STARS) - yielding 1.0% (65 shares)

Magellan Midstream Partners ( (MMP) - 5-STARS) - yielding 5.2% (50 shares)

Schwab ( (SCHW) - 4-STARS) - yielding 1.4% (295 shares)

EARLY MARCH, JUNE, SEPT., DEC.

Atmos Energy ( (ATO) - 5-STARS) - yielding 2.3% (85 shares)

CenterPoint Energy ( (CNP) - 5-STARS) - yielding 4.3% (170 shares)

DuPont ( (DD) - 4-STARS) - yielding 2.3% (165 shares)

MID-MARCH, JUNE, SEPT., DEC.

Analog Devices ( (ADI) - 4-STARS) - yielding 1.8% (95 shares)

Broadcom ( (AVGO) - 5-STARS) - yielding 4.2% (15 shares)

Exelon ( (EXC) - 5-STARS) - yielding 3.1% (140 shares)

Mike Larson, Weiss Ratings' Safe Money Report

Investors are craving investments that generate more income in a world where it's so hard to find them. Look, we all know rock-bottom interest rates can help homebuyers.

They can make it somewhat cheaper to buy a car or carry credit card debt. But they're a killer for retirees, workers, and investors trying to generate safe, reliable income from their investments, without taking on excessive risks.

It's clear the Federal Reserve doesn't really care about the plight of prudent savers. Policymakers have already cut short-term rates three times since last summer. And if anything, their comments indicate they're more likely to cut rates further rather than hike them in 2020. This isn't some minor problem.

It's more like a national income emergency! And it clearly merits focusing on stocks, ETFs and more specialized investments that spin off market beating, consistent, reliable income. It is time to put you into a fund that's generating income "fit for a king." I'm talking about the CBOE Vest S&P 500 Dividend Aristocrats Target Income ETF (KNG) .

KNG is a newer, $48 million ETF sponsored by Cboe Vest Financial LLC with a unique strategy. It owns shares of S&P 500 companies that have proven to not just pay, but raise, their dividends steadily and consistently for a quarter century. You heard that right: 25 years! Only around 50-60 S&P companies have been qualifying recently.

But KNG doesn't just collect the generous payouts from these appropriately named dividend aristocrats. The ETF also employs a "covered call writing" strategy, writing (or selling) call options on up to 20% of each stock holding.

If you're not familiar with how it works, here are some quick basics: A call option gives its holder the right, but not the obligation, to buy an underlying stock at a specified price before a certain expiration date. Each options contract covers 100 shares of any given security, known as a round lot.

Then you write a call option, you receive an upfront payment -- or premium -- from the buyer. Effectively, you give up the right to some degree of stock price appreciation. But you get a payment up front for your trouble.

In early January, the most heavily weighted stocks in the ETF hailed from a diversified mix of sectors. They included drug makers like AbbVie (ABBV) and Johnson & Johnson (JNJ) , data provider S&P Global (SPGI) and toolmaker Stanley Black & Decker (SWK) .

John Bonnanzio, Fidelity Monitor & Insight

2019 was a historically great year for investors to own bond funds. Fidelity U.S. Bond Index (FXNAX) -- a proxy for the broad taxable market) gained 8.5% -- its biggest rise since 2000, and significantly more than bonds' expected long-term returns of 4-5%.

Last year's bond bonanza was preceded by the Fed's four overzealous rate-hikes in 2018 (which resulted in bond prices falling that year), followed by three rate cuts in 2019. That about-face in monetary policy yielded last year's outsized gains.

This year, a flight to safety has helped. But even before the coronavirus spread, sales of investment-grade bonds were running at multiyear highs and the pace of junk bond issuance hit a 10-year high. While the former has continued to be met by strong demand, high yield has sold off (along with other risk assets, including stocks).

While bond investors had the wind to their backs last year (three rate cuts, for example) and into January, it's quite hard to imagine any more easing this year. Indeed, the economy would really have to hit the skids for the Fed to reduce rates from its already-low range of 1.50% to 1.75%.

Certainly, a pandemic could slash global GDP growth (it's already a possibility in China). In that case, we'd expect safe-harbor bonds to hold up quite well indeed. On the other hand, with a true pandemic, we'd all have far more to worry about than our bond-fund performance!

So how best to invest in taxables this year? Keeping in mind that there are already solid gains priced in, we still prefer corporates over Treasuries. Decent GDP growth, low inflation and solid earnings provide corporates solid support.

Over the course of the year, that should give taxable funds a performance edge over lower-yielding government and Treasury bond funds (though the latter outperformed as the virus spread).

In practical terms, we presently prefer Fidelity Investment Grade Bond (FBNDX) over Fidelity Gov't Income (FGOVX) , and we have a slight preference for Fidelity Intermediate Bond (FTHRX) and Fidelity Limited Term (FJRLX) over lower-yielding Fidelity Intermediate Gov't Income (FSTGX) and Fidelity Intermediate Treasury Income (FUAMX) ; their interest-rate risks are similar.

We also recommend the expertly managed and well-diversified Fidelity Total Bond (FTBFX) . A close cousin to Fidelity Limited Term Bond (FJRLX) , its yield is higher (2.30% versus 1.77%) owing to its smallish stakes in high-yield and emerging market bonds (at 12% and 4%, respectively).

For less interest-rate risk our preferred funds are Fidelity Floating-Rate High Income (FFRHX) and Fidelity Conservative Income Bond (FCONX) . To be clear, we classify Floating Rate in our Scorecard as a high income fund.

Although it's Fidelity's least-volatile offering within that group, 58% of its assets are in B-rated bonds with another 5% in CCC- and below rated bonds.

So the fund's overall credit quality is very low. (Then again, Fidelity's credit analysts are among the best in the business at sniffing out and avoiding trouble!)

It's also important to recognize that almost all of this fund's assets are very, very short-term bank notes where default rates are normally minuscule. Held in our income-oriented models, Floating Rate yields a considerable 4.46%.

Finally, for the risk-averse, Conservative Income is an ultra-short term bond fund that's very-nearly a money market (though not technically as its NAV is not as stable!). Yielding 1.64% versus 1.44% for Money Market (Fidelity's only retail-available prime money market fund), it mostly holds high-quality corporate debt.

In last year's falling rate environment, Floating Rate was swimming upstream. But with minimal interest-rate and credit risk, Conservative Income still returned 2.9% -- almost a full percentage point more than Money Market. Top-bracket investors should hold Fidelity Conservative Income Municipal (FCRDX) .