Surviving the Income Famine

Dividends provide an alternative as interest rates stay low

With interest rates at historic lows, investors face a frustrating dilemma — how to generate current income and protect capital. Low bond yields have discouraged many investors from buying more than one or two years out, and money market rates are essentially zero. The situation has driven some to sell off assets to sustain their desired lifestyles, and left others wondering what to do.

In many cases, the answer may be dividends — shifting some of the income production burden to equity dividends.

Global dividends
The worldwide dividend pool is large and deep. In the last year, corporations paid out more than $808 billion in dividends globally, more than half of that originating from outside the United States. European companies topped the dividend payout list at $301 billion, followed by the US at $225 billion. Even emerging markets, not traditionally thought of as a dividend machine, generated $113 billion in cash payments to investors.

Dividends can be attractive for a variety of reasons:

Dividends often rise as corporate performance improves, providing the possibility of income growth, which bonds cannot.
Dividends have grown faster than inflation in the U.S.¹
Individual investors typically keep 85% of their dividend return, after federal taxes.

Many exchange traded funds (ETFs) offer access to reasonable dividend returns. For instance, below is a list of 17 dividend-producing international index ETFs we have surveyed at Osbon Capital, with accompanying expense ratios, assets, and dividend yields for the last twelve months. All of these ETFs, representing many diverse geographies and industry sectors, have twelve-month yields of at least three percent. By comparison, the 10-year Treasury yield is 2.57%.

We utilize these ETFs (and many others), carefully vetted from the nearly 1000 ETFs now available, because we feel they accurately track the performance of distinct asset classes and provide diversification, while controlling expenses and managing tax exposure.

Of course, a good yield alone does not make an ETF the right choice. We use technology from Windham Capital to determine asset allocations and model portfolios appropriate for the specific goals, time horizons, and risk tolerance of investors.

Interest rates will rise someday, but in the meantime don't forget the income generating possibilities of dividend equities.

¹WisdomTree.com, US Bureau of Labor 2010

September 27, 2010

Contact: John Osbon 617.217.2772 josbon@osboncapital.com

Osbon Capital Management, LLC ("Osbon") is an SEC registered investment adviser with its principal place of business in the Commonwealth of Massachusetts. Osbon and its representatives are in compliance with the current notice filing requirements imposed upon registered investment advisers by those states in which Osbon maintains clients.

This Q&A contains general information that is not suitable for everyone and should not be construed as personalized investment advice. Any historical data presented herein are for informational purposes only and do not reflect actual client accounts.

All data provided by Bloomberg. Assets and expense ratios are most recently reported as of September 20, 2010. Twelve month yield is based on dividends paid during the one year period ending September 20, 2010. Future yield may be higher or lower.

This is a partial list of ETFs utilized by Osbon Capital. We receive no compensation of any kind from these funds or fund families.

Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this article will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. It is not possible to make an investment directly in an index.

For additional information about Osbon, including fees and services, send for our disclosure statement as set forth on Form ADV using the contact information herein. Please read the disclosure statement carefully before you invest or send money. For information pertaining to the registration status of Osbon, please contact Osbon or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov).