There are several places in the market today where investors can find income. Attractive yields have drawn investors to bonds this year, with the 10-year Treasury yield remaining above 4%. Americans also flooded cash equivalent accounts such as money market funds, which totaled $6.68 trillion in assets in the 6-day period ending Nov. 26, according to the Investment Company Institute. However, money market yields are expected to fall along with the Federal Reserve’s interest rate cuts. For example, the Crane 100 list of the 100 largest mutual funds was up more than 5% this year. On Tuesday it was 4.44%. In this environment, UBS supports diversified fixed income strategies. Still another way to get income is to buy dividend-paying stocks, such as those with high yields and consistently growing payouts, said Mark Haefele, chief investment officer at UBS Global Wealth Management, in UBS’s 2025 outlook. In fact, the yield on the MSCI World High Dividend Yield Index will likely surpass cash yields by the end of 2025, he wrote. “Considering high dividend yields with a track record of consistently growing dividends can improve income sustainability,” Haefel said. Option strategies such as put writing and covered call writing can also increase income potential, he notes. With a covered call strategy, investors buy a stock and then write call options against it. Investors hold onto the stock and may capture some capital appreciation. When the investor achieves the price of the call option written against it, the stock can be called. A put is the right to sell a share for a certain price within a certain period of time. Investors collect income from writing option contracts. “By capturing volatility premiums, such strategies can further diversify a portfolio’s sources of income and may be treated as capital gains (rather than income) in some jurisdictions,” Haefel wrote. However, it’s the combination of all three that can really pay off. “We think a mix of high dividend, dividend growth and options strategies can deliver a total return of around 5-7% per year,” Haefel said. Putting Strategies to Work Investors can trade individual options, or invest in one of the many exchange-traded funds that have sprung up as the strategies become more popular. The largest actively managed covered call ETF is the JPMorgan Equity Premium Income ETF ( JEPI ), with a 30-day yield of 8.03% and an adjusted expense ratio of 0.35%. Global X has a number of passively managed funds that track various indices, such as the S&P 500 Covered Call ETF (XYLD). It has an annual distribution rate of 10.35% and a total expense rate of 0.6%. When finding high-yielding dividend stocks, it’s also important to look at the company’s fundamentals, such as whether they can cover their payouts. For example, investor Jenny Harrington targets stocks with relatively high dividend yields. The CEO of Gilman Hill Asset Management usually looks for stocks that can be cheap and likes to see the potential for earnings growth. Jeremy Zirin, head of the U.S. private client equity group at UBS Asset Management, agrees that not all dividend-paying stocks are worth buying. He is firmly in the realm of consistent dividend growth with the fund he manages, the UBS US Dividend Ruler Fund (DVRUX). The fund focuses on companies with consistent long-term dividend growth. It also looks for companies that pay a dividend yield equal to or greater than that of the S&P 500. The broad market index is currently yielding 1.18%. “Research suggests that companies that consistently grow their dividends deliver better risk-adjusted returns than the highest-yielding stocks,” Zirin said in an interview with CNBC. The DVRUX YTD Mountain UBS US Dividend Ruler Fund defines a 10-year track record of sustained year-over-year growth of at least 4%. Zirin also looks at company fundamentals, such as whether cash flows are strong enough to support the dividend and how companies prioritize payouts. In addition, the group has strong views on the broader markets and where the money is going, he said. One sector where funds have been overweight is financials, which are relatively cheap in a sustained economic expansion, Zirin noted. The incoming Republican administration and Congress should also implement such tough regulations, he added. Another attractive sector is technology, which is often overlooked by dividend investors, he said. The fund finds stocks that match its criteria, and are exposed to artificial intelligence or other secular growth opportunities that can deliver upside. Here are the top holdings in the UBS US Dividend Ruler Fund as of September 30. Its main holding, Microsoft, has delivered 19 consecutive years of dividend growth, Zirin said. In recent years, it has increased its dividend by 10%, he said. The stock currently yields less than 1% and is up about 16% year-to-date. Broadcom, which yields 1.26%, has grown its dividend for 15 consecutive years. Some of the top financial holdings have a strong track record, like JPMorgan, with its 14 consecutive years of dividend growth, Zirin said. Retailer Home Depot has had 15 consecutive years of dividend growth, he added. The former has a dividend yield of 2.04%, while the latter has a yield of 2.1%.
