Tags: BlackRock | Bonds | Dividend | cash

BlackRock President: Buy High-Yield Bonds, Dividend-Paying Global Firms

By    |   Thursday, 08 March 2012 07:41 AM

Get out of cash and buy high-yield bonds and stocks of dividend-paying global companies, says BlackRock president Robert Kapito, according to CNNMoney.

Kapito himself has 30 percent of his assets in high-yield bonds, also known as "junk" bonds, and 70 percent of his assets in stocks.

Americans are holding record sums in cash. But with interest rates near record lows, their returns are next to nothing. People keeping their money in cash — even though they're worrying about how to fund their retirement — will have to work longer before retiring because of their meager returns, he warns, according to CNNMoney.

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"People need to rethink the cost of cash, and think about income," he told CNNMoney. "They're worried they don't earn enough and won't have enough to retire on, but the longer they sit in cash, the longer they'll have to work and they won't be able to retire when they want to."

While the 10-year Treasury is yielding about 2 percent, high-yield bonds are returning 5 percent to 6 percent and dividend-paying stocks are yielding 3 to 5 percent a year.

Income-seeking investors are indeed turning to high-yield bonds. BlackRock's iShares iBoxx High Yield Corporate Bond ETF has collected over $3 billion so far this year, already almost as much as in all of 2011.

Dividend-paying stocks may be a good idea, agrees MorningStar European ETF analyst Hortense Bioy.

They tend to be less volatile and can provide good inflation protections, she writes in an article for MorningStar. Studies show that companies with rising dividends are more likely to produce goods and services that keep pace with inflation, such as food and energy.

ETFs are a good option for investors unwilling or unable to pick particular stocks themselves, she writes.

A plethora of ETFs are available, with different valuation approaches and sector concentrations.

ETFs focusing on stocks with the highest yields may be riskier, as those stocks may soon cut their payouts.

Investors can avoid risk by seeking high-quality companies. Sectors like telecommunications, utilities, energy and healthcare, which tend to have a high concentration of dividend-paying stocks.

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