HH Where To Find Yield In This Market

One has to feel for the “savers” in society over the past seven years. Thanks to the Federal Reserve’s zero interest rate policy (ZIRP) in place over most of that time span, traditional safe interest bearing instruments like certificates of deposit pay next to nothing.

Valuations on traditional dividend sectors like Utilities have been stretched over most of that time span. Investors pretty much bid up about anything that offered yield through the central bank’s quantitative easing era that just ended late in 2014.

Hopes for a slow and gradual rise in interest rates in 2016 already looks dashed as markets have seen substantial turmoil since the Federal Reserve hiked rates by a whopping quarter point for the first time since 2006. The central bank originally projected it would raise interest rates four times in 2016 all in quarter point increments. At the current time, no one believes the central bank will hike rates more than once or twice this year if at all.

This has forced many conservative income investors to move out on the risk scale and resulted in disastrous results. Nowhere has this been more the case than investors who moved way out on their risk curve in the chase for yield than in the upstream master limited partnership space. Many of these structures are already heading to bankruptcy thanks to the collapse in energy prices. Wells Fargo just downgraded every upstream MLP in its universe to Underperform and notes many have no equity value at current oil and natural gas prices.

So, where do I see value for yield investors in the current market where the ten-year treasury is yielding right around 1.8%? Three areas. First are the lodging REITs that had sold off 30% to 40% from their highs before starting to rebound in the rally this week as the overall market bounced. My favorite three names remain the same as recently profiled. They are still attractively valued and yield six to eight percent.

Next up are cheap value stocks that have big yields. Two of my favorites right now are automakers Ford (NYSE: F) and General Motors (NYSE: GM). Both are benefiting from low gasoline prices as the amount of high margin trucks and SUVS in the overall sales mix are hitting levels not seen in more than a decade. Domestically, it was a record year for vehicle sales in 2015 and this year should again be solid.