The Top 5 Income-Generating Assets in 2024

Investments that provide income are essential to a well-rounded portfolio because they provide stability, cash flow, and wealth protection. Because of this, income investments should be viewed differently by investors than growth stocks, which carry a higher level of risk but also have a greater potential for financial appreciation.

As investors witnessed in 2022 and in the months of August, September, and October of 2023 when the equity markets fell, income investments provide a safety net during volatile market periods.

Bond interest payments and stock dividends on a regular basis provide a stable income stream that lessens reliance on capital gains alone. That’s especially crucial when there are widespread market declines.

Growth-oriented assets and income-producing assets are balanced by investors to build a robust portfolio that can withstand market swings and yield a steady stream of profits.

The following investments can generate income for your portfolio in 2024:

• Bonds and bond ETFs
• Dividend-paying stocks and ETFs
• Master limited partnerships
• Real estate investment trusts
• Annuities

Bonds and Bond ETFs

Bonds provide income, capital preservation, and diversification, all of which act as stabilizing factors in portfolios. Additionally, they reduce stock market volatility, which can aid in balancing returns.

With $105.4 billion in total assets, the largest bond exchange-traded fund, or ETF, is the Vanguard Total Bond Market ETF (ticker: BND). Its low expense ratio is 0.03%, and its trailing 12-month yield is 3.1%.

It follows an index of domestic investment-grade, taxable, fixed-income instruments, such as corporate and government bonds. The average yield to maturity is 4.5%, and the typical maturity is five to ten years.

With a 3.1% yield over a 12-month period, the iShares Core U.S. Aggregate Bond ETF (AGG) is another well-liked bond fund. With a net asset value of $101.5 billion, this exchange-traded fund (ETF) monitors an index made up of the entire US investment-grade bond market. Its cost-to-income ratio is 0.03%.

J.P. Morgan analysts stated in a blog post on December 8 that they think bonds will become more important in portfolios when interest rates decline and that “the extent of today’s elevated yield levels may not last much longer.”

J.P. Morgan analysts added, “Rates are falling, and fast. Ten-year Treasury yields have dropped over 80 basis points since their peak in mid-October. And historically, they’ve fallen more than 200 basis points in the two years after the final Fed rate hike, which we think we saw in July.”

Dividend-Paying Stocks and ETFs

Like bonds, dividend-paying stocks give investors a steady stream of income, which keeps them stable during bear markets.

A dividend is also frequently an indication of the strength and stability of a company’s finances. Because of this, income-oriented investors looking for a steady stream of profits find dividend stocks appealing.

Certain industries consistently generate dividends in both dense and thin markets. dependable sector ETFs that pay dividends (including with their trailing 12-month yields) include:

• Utilities Select Sector SPDR Fund (XLU): 3.5%
• Real Estate Select Sector SPDR Fund (XLRE): 3.5%
• Energy Select Sector SPDR Fund (XLE): 3.6%

By allocating a portion of their portfolios to income-producing assets, investors can withstand market fluctuations throughout up and down years or even months.

“Just think of it, the stock’s price goes up, you make money and then you get money for the dividend. If the price goes down, you still receive the quarterly dividend,” said Glenn Tompkins, senior market strategist at VectorVest, in an email.

“Oh, by the way, some companies will actually pay you dividends on a monthly basis. Now we are talking,” he says. “Dividend-paying stocks are a great way to make money while you sleep.”

A convenient way to access dividend-paying stocks is through an ETF such as the Vanguard Dividend Appreciation ETF (VIG), which tracks large-cap U.S. stocks with a record of growing their dividends year over year.

Master Limited Partnerships

In the oil and gas sector, master limited partnerships, or MLPs, are popular corporate structures that combine the tax advantages of a partnership with the liquidity of publicly traded equities.

Because they distribute profits to shareholders directly, MLPs are renowned for paying out large dividends. This is because the MLP receives tax benefits and is exempt from corporate income tax.

Because of the nature of their business, they frequently deal with energy infrastructure, such as pipelines, which produce steady cash flows irrespective of fluctuations in oil prices. This is so because long-term service contracts are how energy transportation firms, many of which are set up as MLPs, make money.

The following energy MLPs have strong dividend yields:

• Enterprise Products Partners LP (EPD): 7.6%
• Energy Transfer LP (ET): 9%
• MPLX LP (MPLX): 9.1%

As an industry, oil and gas pipeline firms increased steadily in 2023, and as of February 6, leaders in the sector had achieved outstanding one-year returns. Even so, MLP stocks’ dividend payments are still dependable, even in the event that they fall in 2024.

Real Estate Investment Trusts

Because of their special structure, which mandates that they distribute at least 90% of taxable profits to shareholders, real estate investment trusts, or REITs, consistently pay dividends.

REITs specialize in delivering steady rental revenue and mostly invest in income-producing real estate, such as commercial buildings or residential complexes.

The S&P real estate market lagged behind in 2023. Nonetheless, REITs are a well-liked choice for investors looking for a steady income stream because of their predictable cash flows, which enable them to maintain and even boost dividend payouts. In other words, whether the market closes higher or down in 2024, REITs are income assets to take into account.

Leading REITs that pay dividends and their yields consist of:

• Hannon Armstrong Sustainable Infrastructure Capital Inc. (HASI): 6.7%
• Boston Properties Inc. (BXP): 6.2%
• Omega Healthcare Investors Inc. (OHI): 9.6%

Annuities

Because of their fees, complexity, and possible surrender charges, annuities can be contentious. However, annuities can provide assured payouts for investors looking for stable income sources, particularly in retirement.

An insurance firm receives payments from you when you buy an annuity; these payments might be made in the form of lump sum payments or ongoing contributions. The insurer offers a future or immediate guaranteed revenue stream in exchange.

Annuities may make sense in some circumstances, despite the fact that many investors and financial professionals oppose their use. For those who are risk averse, their fixed or variable payout arrangements offer a stable source of income.

Annuities can be viewed as instruments by retirement savers to lessen their future liabilities in retirement, according to Paul Tyler, chief marketing officer of Nassau Financial Group. “For example, you know you will have future health care, basic living requirements and housing expenses to cover in the future when you stop working,” according to him.

“An annuity purchased today can create a predictable stream of income in the future to at least partially offset those expenses,” Tyler adds. “An annuity also allows the assets to grow for a longer period of time before being withdrawn to cover known future expenses in retirement.”