For many, the best choice will be to spread risks across funds that invest in a range of companies and sectors. The WisdomTree Dividend ex-Financials Fund and the Schwab U.S. Dividend Equity ETF have gained 7 percent in net asset value this year and 14 percent over the past 12 months. They're U.S. News's top-rated Best Fit ETFs in the income category.
Still, there's a case to be made for anything offering yield these days, which bonds simply aren't. "Compared to 10-year treasuries paying 2 percent, these yields are attractive," says Brian Gendreau, market strategist for Cetera Financial Group. "You can do a spreadsheet and find thousands paying much more than that. And you can lose principle on bonds if rates go up. Dividend-paying companies increase their dividends when that happens. We are still recommending them."
[See 8 Top-Rated Income Funds.]
But the recent rise in stocks and the targeting of dividend payouts has the potential to lower yields in the short term. Investors hoping for more dividend income could be disappointed if increases fail to please, and Roseen says there are signs that investor enthusiasm is already waning. Inflows to equity income funds have leveled off and fund buyers have been moving into more non-income-driven corners of the market. Investors put $60 billion into equity and mixed asset funds in January, Lipper reports, making it the biggest month in seven years. Equity income made up just $2.5 billion of the total. Most of the new money went into growth, value, and international stocks. If that trend continues, some analysts see it as a healthy sign for the market as investors look to get more diversified.
"You have seen investors in a desperate search for yield with treasury yields as low as they are, says Hugh Johnson of Hugh Johnson Advisors. "Investors are turning in every direction to try to increase either divided or interest income in their portfolio. I don't want to call it mania quite yet, but it has all the earmarks of mania."