The Federal Reserve—with a big helping hand from the global financial crisis and the central banks of much of the rest of the developed world—has turned income investing upside down.

The Fed’s near 0% short-term interest rate target has sent short-term yields for savers and investors plunging toward, you guessed it, 0%. If you scout around you can find market accounts offering 1% or 1.3% tops, but 0.3% or 0.4% is more common. And even that beats the 0.11% yield on three-month Treasury bills as of October 12.

Yields on corporate bonds aren’t any better. Yields on investment- grade U.S. corporate debt fell to a record low 3.56% in the first week of October, according to data from Bank of America.

And now the Fed is making noises—loud noises—about doing the same for long-term interest rates. Yes, the Fed is considering a new round of quantitative easing—a term that doesn’t have anywhere near the shock value of saying “Yes, we’re thinking about buying another $1 trillion or so in Treasury bonds on credit”–to drive long-term rates lower. Lower? A two-year Treasury note already yields just 0.37%. Go out to 10 years and you can get 2.43% on a Treasury. Thirty-years? 3.81%. (Good luck with inflation over three decades.)

Which has made this a completely confusing time for income investors. Read more

Sell American Electric Power (AEP)

There’s certainly something very attractive about a utility stock that pays a 4.6% dividend yield when the 10-year U.S. Treasury is paying just 2.8%. But investors in American Electric Power (AEP) need to realize that if the U.S. economy is speeding up rather than slowing down, they’re bucking investor sentiment by holding utility shares.

Utilities are great income investments when investors are worried about economic growth and are looking for safety. The prices of utility shares, however, tend to fall when investors think the economy is picking up and they start to be willing to take on a little more risk in order to earn, they hope, a lot more reward. At that point in the cycle, utility stocks aren’t attractive on a total return basis.

Utility revenues themselves go up when the economy grows at a faster rate because more economic activity means higher consumption of electricity. But not enough to outweigh the shift in sentiment away from safety and toward risk.

And shares of American Electric Power have another problem. Read more

Buy Intel (INTC)

Shares of Intel (INTC) have been hammered on news showing that PC sales to consumers have been soft in the current back to school quarter.

I think that sell off ignores the company’s strengths in other markets, such as servers, that show no signs of slowing growth, and it ignores the huge replacement cycle coming for PCs as businesses and consumers all make the purchases that they put off during the recession.

Timing a product replacement cycle in an economy as tough to read as the current one isn’t easy—but thanks to the drop in Intel’s price the stock comes with a very acceptable 3.4% dividend yield. That means you’ll get paid to wait for the replacement cycle to kick in.

And at a rate that’s well above the current 2.75% yield on 10-year U.S. Treasuries.

A technology stock with great potential for capital appreciation and paying a 3.4% yield?

Those don’t come around very often. Read more

Asian stocks beat U.S. equities on dividends? Who knew?

High dividend yields are showing up in some unexpected places. Like Asia.

If you think anything like I did just a scant few months ago, you wouldn’t dream of looking to Asian stocks for high dividend yields. Most likely, you think of them like I did, as resembling the technology sector: Lots of growth but no yield.

Well, I was wrong and if you think like that you’re missing an increasingly important source of high dividend yields. (By the way, technology stocks pay dividends too these days. Check out Intel (INTC) to see what I mean.)

Here’s the data from the Matthews Asia Dividend fund (MAPIX) that opened my eyes. “Based on consensus estimates, the projected dividend yield for 2010 of the MSCI AC Asia Pacific Index of 2.5% exceeds the 2.0% expected of the MSCI U.S. Index,” the fund’s managers wrote in their December 31, 2009 report. In other words Asian stocks out-yield their U.S. counterparts.

And the Asian yield story looks like it’s got a way to run. In China, for example, total dividend payments grew to $73 billion in 2008 from just $8 billion in 1998, according to the December 31 report from another Matthews fund, the Matthews China Dividend Fund (MCDFX). And $57 billion of the $73 billion in dividends paid out in 2008 came from companies that went public after 1998. Even recently public companies in China, it seems from the data, are paying good dividends.

Why haven’t dividend investors stocked up on these higher Asia yields? (In the process driving yields down, of course.)

Couple of reasons, I think. Read more

Buy Navios Maritime Partners (NMM)

With the global economy in solid recovery mode—for example, the U.S. economy will grow at a 2.4% rate in the first quarter of 2010 and at a 2.3% rate in the second quarter (not great but a long way from recession) according to the OECD (Organization for Economic Cooperation and Development)—I think it’s time to reach a little further for yield.

Navios Maritime Partners (NMM) is a cyclical stock subject to huge ups and downs with the ebb and flow in global demand for commodities such as iron ore, coal, and grain. But it looks like we’re now in the flow part of the cycle: Revenue at Navios climbed to $93 million in 2009 from $75 million in 2008, and earnings per unit look to have, at worst, stabilized with Wall Street analysts forecasting a mere 1.3% decline for 2010 to $1.64 a unit. That’s enough to cover the $1.62 current distribution that gives the units a 9.1% yield. Read more