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When the stock market is turbulent, there's nothing more comforting than getting income from your investments. Share prices can rise and fall, and paper gains give way to losses and back again, but getting a check in hand is the real deal -- and is more valuable than ever.

If you like drawing some income from your portfolio, you've had to deal with an all-out attack on fixed-income yields from the Federal Reserve and safety-crazed financial institutions. But fortunately, you have alternatives. They may not be perfect, but they're a lot more rewarding -- and they have the potential for even greater gains going forward.

A historic crossover
Traditionally, if you wanted a solid income investment with no risk of losing your principal, you'd go to the Treasury market. Specifically, long-term Treasuries offered reasonable income yields that often greatly exceeded what you could get from riskier investments such as stocks. The trade-off was that you'd give up any chance of seeing your investment grow, as with a bond, what you invest upfront is what you get back when the bond matures.

But as you well know, August has brought a torrent of unusual news and huge volatility to the financial markets. Among the other landmark events you've seen, including the near-default resulting from the debt ceiling debate and the first-ever downgrade of Treasury debt, add this one to the list: This week, for the first time in 50 years, the yield on the benchmark 10-year Treasury bond fell below the dividend yield of the S&P 500.

Where the income is
Now bear in mind, that crossover didn't last long: After Thursday's big rebound in stocks and drop in Treasuries, Treasury yields were back above the S&P dividend yield. But the fact that those yields are anywhere close to each other shows just how risk-averse investors are.

Think about it: If you buy a Treasury bond rather than a dividend-paying stock with the same yield, you're essentially saying that the stock has no expected growth whatsoever. Conversely, if you choose the stock, you know that the dividend alone should compensate you for your invested money; any capital gain above that is icing on the cake.

But if you're not satisfied with the 2% to 2.5% that the S&P 500 and 10-year Treasuries pay in yield right now, I have more good news: You don't have to settle for less. In fact, it's easy to find plenty of relatively safe large-cap stocks that double the income you'd get from a 10-year Treasury. Moreover, you can get them from a wide cross-section of the stock market. Here are some examples:

  • If you think that so-called "sin stocks" are the path to prosperity, you don't have to go far down the alphabet to find cigarette maker Altria (NYSE: MO  ) and beer distributor AmBev (NYSE: ABV  ) . They both have in-demand products with loyal customers, and with Altria paying more than 6% and AmBev more than 5% in yield, you'll get some regular income to go with your growth prospects.
  • Banks in the U.S. largely went the way of the dividend dodo during the financial crisis, but in the Great White North, Canadian financial institutions still stand tall. Bank of Montreal (NYSE: BMO  ) and Canadian Imperial Bank of Commerce (NYSE: CM  ) both weigh in with solid 5% yields, while insurer Sun Life Financial (NYSE: SLF  ) comes in just shy of the 6% mark.
  • Energy stocks have gotten thrown to the floor as bears weigh a potential double-dip recession. That's pushed yields on master limited partnerships Kinder Morgan Energy Partners (NYSE: KMP  ) and Enterprise Products Partners (NYSE: EPD  ) into roughly the 6% range.

In fact, when I did my search, I found 60 stocks from sectors ranging from pharmaceuticals to mining, telecom to utilities, and many more. So depending on which industry is your favorite, you can pick and choose from among all these high-yielding stocks. And if you buy them, you can win in two ways: the regular cash from their dividend, as well as possible gains when stocks rebound from their recent swoon.

Better than a sure thing
It's a certainty that when it comes to getting back your principal, dividend stocks are riskier than Treasuries. But with all the other uncertainties out there -- inflation, currency devaluation, and sovereign debt, just to name a few -- dividend stocks might actually do a better job of fighting all the risks you face than Treasuries do.

If you want even more great dividend-stock ideas, check out this free special report from the Motley Fool. Inside, you'll find 13 names, along with analysis to tell you why we think they might fit well in your portfolio.

Fool contributor Dan Caplinger always likes it when stocks show him the money. You can follow him on Twitter here. He doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of Altria Group. Motley Fool newsletter services have recommended buying shares of Enterprise Products Partners. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy gives you double the pleasure and double the fun.


Read/Post Comments (7) | Recommend This Article (18)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 12, 2011, at 4:18 PM, DividendDude wrote:

    Dividend stocks don't have to continue paying dividends - they can lower their dividend, or eliminate it, at any time without prior notice. This is one important fact that was overlooked in this article. The bottom line is that Treasuries are BOUND to paying you income and, thus, are more of a 'sure thing' than dividends.

  • Report this Comment On August 13, 2011, at 2:03 PM, lowmaple wrote:

    divdude sure thing to not keeping up with inflation

  • Report this Comment On August 13, 2011, at 6:47 PM, Greygoose1 wrote:

    I'll stick with my dividend stocks with chance for growth rather than treasuries that will not even keep up with inflation. Being paid to be "patient" is my way of investing for the future...

  • Report this Comment On August 14, 2011, at 2:50 PM, mm5525 wrote:

    Totally disagree with you, X-Ray. I get a substantial amount of money a year in my dividends ALONE without ever hitting the sell button, and can still hit the sell button whenver I choose WHEN I choose. I'd rather get cash now on regular intervals and still own the stock rather than just hold the stock and "hope" for the future. No one can predict the future, not even you. Plus, when the market goes down, I get a better return from reinvesting those dividends given I get more shares at better prices, and I can always sell on a better day. When the market tanks, dividend stocks provide substantial protection against further downside due to their yields.... Most tech stocks don't provide that.

    Every three months, I get money from my stocks without EVER having to hit the sell button. Try to tell me the same is the case for AAPL.

    Most stocks move with the general market sentiment.

    And, what on Earth happens to you if AAPL is out-done by some other company, which is very common in tech? Not long ago RIMM was the flavor of the month (year), MSFT, CSCO back in the 1990s... Look at them today. They're paying dividends just to remain relevant.

    To quote Bob Dylan from the song about the 'Times are a Changin' about Tech: "The first one now will later be last." If you want to ride the tech wave, go right ahead, but what if the iPhone becomes obsolete just like the BlackBerry is slowly (but surely) becoming obsolete? Don't get me wrong, I love AAPL's products. But if you're an investor, you've got to look down before you look up, at least if you're a seasoned investor... IMO.

    AAPL could outperform every dividend stock I own..... but I don't care. I'd rather take cash along the way.

    Invest in companies that make money in both bull and bear markets, and have dividend protection on top of it, especially companies that increase their dividends every year.

    People need oil to drive to work. People need natural gas to heat and cool their homes. People need toothpaste, tampons, toilet paper, and food to get from one day to the next. People do not need iPhones.

    Look down before you look up. You may grossly underperform the market on the upside, but you will crush the market when it turns to the downside.

  • Report this Comment On August 15, 2011, at 10:20 AM, DividendDude wrote:

    mm5525 makes some good points, but also shows us the biggest mistake that most dividend investors make - namely, poor dividend management. Somehow mm5525 is both taking 'cash along the way' and 'reinvesting those dividends'. The smart dividend investor KNOWS where the dividends are going.

  • Report this Comment On August 17, 2011, at 8:05 PM, pryan37bb wrote:

    With regards to the concerns voiced about dividends, specifically the potential for cuts, one strategy for avoiding that is to cull the list of Dividend Aristocrats, who have a vested interest in not only maintaining, but also raising, their dividends. Another suggestion would be to look into their payout ratios to discern secure payouts from dangerously high ones. Or, for the more passive investor, the Vanguard Dividend Appreciation fund is a viable alternative, and the dividend growth has a solid chance of outpacing inflation, or at least a better chance than the interest on bonds.

  • Report this Comment On August 20, 2011, at 11:45 AM, Matt84 wrote:

    Great article and great analysis from mm 5525. That's why I'm a defensive/dividend investor myself.

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Dan Caplinger
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Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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