By JACK HOUGH
Income investing used to be easy. A retiree who plunked $1 million into 10-year Treasury notes during the past half century locked in, on average, a yearly income of around $67,000. But with interest rates at record lows, that same investment recently paid less than $15,000 a year.
Some investors are looking to stocks with high dividend yields to recoup this lost income. Standard & Poor's 500-stock index yields 2.2 percent, but its top 50 stocks, by dividend, yield an average of 5.5 percent. That's enough to turn that $1 million into $55,000 in yearly income.
Be careful about reaching too high for yield, however. Income investors are better off skipping those top 50 high-yielders and looking instead to the 50 that are just below them, whose yields average 3.8 percent.
Here are three reasons: First, high-yielders were stars last year but have been slipping of late. The S&P's top 50 yielders returned a whopping 18.5 percent in 2011, beating the 2.1 percent total return for the broad index as well as the total returns for more than 30 stock-picking strategies tracked by Bank of America Merrill Lynch. But so far this year, high-yielders have performed near the bottom of the pack.
The third reason: The dividend tax is capped at 15 percent; but the cap expires at the end of this year, and without action from Congress, the rate for high-income investors could more than double. That could lead to a short-term sell-off in high-yield stocks.
The stocks below come from the S&P 500's second-highest-yielding group of 50. Each firm has manageable debt and affordable dividends, and each recently boosted its payment -- as good a sign as any that management sees healthy profits ahead.