The Best High-Yield Short-Term Investments

by Terence Channon ; Updated July 27, 2017

With savings accounts and money markets hardly paying any interest, you may want to look for alternative forms of high-yielding investments to boost your portfolio returns. High-yielding short-term investments can provide better returns than standard savings accounts, CDs or money markets.

Consistent Dividend Payouts

The best high-yielding investments will showcase a long history of not only consistently paying out dividends but also raising them as more income is generated. Some high-yield investments will see their dividend payouts or distributions wildly fluctuate based on market conditions or company payout policies. These high-yielding investments may generate big returns one year but be flat in the years to come. Look for investments with a consistent dividend track record and take into consideration the stability of payouts year to year.

Income Stream to Support Payouts

Understand the source of the investment’s income prior to investing. Many high-yield investments are dependent on things such as the price of an underlying commodity, such as oil or mineral rights. It does not matter if the investment earns its income from oil, gold, mortgage interest or lumber, take note of the source of the investment’s income and confirm there is a stable source of income for future payouts. For instance, if an investment bases its dividend on the sale of iron ore or lumber from a single property, at some point the natural resource may be exhausted and the investment may not be able to support future payouts. A company that generates income from multiple properties and continues to acquire new fields or explore for new ones will have a better chance of sustaining high-yielding payouts.

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Payout Cushion and Room to Grow

Be sure that your periodic distributions and payouts are protected against any unexpected events. Certain companies, such as REITs, are required to pay out over 90 percent of their available income in the form of dividends to maintain their tax-advantaged status. However, the best high-yielding investments will leave some room for the dividend to grow and have some protection against reducing the payout in the event of a bad quarter. If a high-yield investment is paying out all of its earnings as a dividend or borrowing funds to sustain the payout, the yield may be in danger.

Low Expense Ratios

It is reasonable to expect that there will be some expense associated with the management of your high-yielding investment. A requirement of purchasing shares in a high-yielding mutual fund or other investment is to pay expenses associated with the general operation of the fund. The expense ratio is expressed as a percentage of your investment. Often, high-yielding investments carry higher expense ratios due to the higher degree of risk associated with them. Do a comparison of the high-yield investments you are interested in to determine an appropriate expense ratio. For instance, a high-yield fund with an 8 percent yield and a 1 percent expense ratio would be a better option than a fund yielding 10 percent and requiring a 5 percent expense ratio.

About the Author

Terence Channon first began writing in 1998. His writings primarily focus on small business, personal finance/investing and e-commerce. Channon holds a Bachelor of Arts from Stetson University in religious studies and participated in the school's Roland George Investments Program and Prince Entrepreneurship Program.

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