Best Income Ideas for 2025: Stocks, Bonds, and Everything in Between
From foreign stocks to preferreds, we rank the best places for investors to find yield this year.
Bonds took a back seat to stocks in 2024, but income investors still found ways to get paid. The same should be true in 2025.
Taking some risk paid off last year. While long-dated Treasuries had flat to negative returns, and municipal bonds and broad high-grade bond indexes returned closer to 2%, junk bonds, convertibles, and preferred stock generated mid-single to low-double digit returns.
Among stocks, energy pipeline companies were a standout as they emerged as data-center plays, given that they transport the natural gas to produce the electricity needed to power them. Electric utilities also had a strong year as artificial-intelligence plays, keeping up with the S&P 500 index’s 23% rise. The broad Vanguard High Dividend Yield exchange-traded fund, led by megacap dividend payers like JPMorgan Chase and Exxon Mobil, returned a respectable 17%.
Looking ahead to 2025, there is still plenty of yield to be found in stocks and bonds. In fixed-income markets, investors can get 3% to 5% yields on munis, 7% or more on junk debt, 5% to 7% yields on preferred stock, 2% on convertibles, and 4%-plus on Treasuries of varying maturities. That might not be as exciting as those available in private credit—or loans with double-digit yields to private companies, many of them the target of leveraged buyouts—but that area is getting very crowded, and returns may not match those in recent years.
Whitney Watson, co-chief investment officer of fixed income at Goldman Sachs Asset Management, likes lower-quality investment-grade bonds and higher-quality junk in the 5% to 7% area. “Public fixed income offers attractive income potential in 2025,” she says.
Investors can receive 3%-plus yields on a range of stocks, even though the S&P 500 yields just 1.3%. Pipeline stocks yield 4% to 6%, real estate investment trusts and electric utilities yield 3% to 4%, and out-of-favor drug stocks, 4% or more. Telecom stocks have some of the highest dividends in the S&P 500, with Verizon Communications yielding over 6%.
The Federal Reserve is a wild card for 2025. The current federal-funds rate is 4.25%-4.5%, and investors now expect two rate cuts totaling half a percentage point, but there could be more or potentially no action depending on the direction of the economy and inflation. That has us staying the course. Barron’s favored stocks over other assets for income over the past few years in our annual outlooks, and we’re sticking to that view this year. International stocks often yielding 4% or more could be a standout in 2025 after a long period of lagging behind U.S. stocks. Electric utilities and energy pipelines are still appealing even after sizable gains in 2024.
U.S. Treasuries could be worth a look after a tough 2024 for intermediate to long-term bonds. The yield on the benchmark 10-year rose more than half a percentage point to 4.5% in 2024. U.S. mortgage securities yielding close to 6% are an underappreciated high-quality investment. And don’t forget cash: Treasury bills and money-market funds still are yielding over 4%, comfortably above the inflation rate of close to 3%.
No matter what kind of investor you are, there are still plenty of opportunities. As Barron’s does annually, we rank 12 sectors below in order of our assessment of their 2025 appeal. We had a good record in 2024, ranking U.S. dividend stocks, pipelines, and utilities at the top of our list and Treasuries at the bottom (see table of returns), though we were too bullish on international stocks. Here’s where to find income now.
Foreign Dividend Stocks
After another poor year for international markets relative to the S&P 500, investors can find a lot of yield overseas. Even the broad iShares MSCI EAFE ETF, which tracks developed markets outside the U.S., yields about 3%.
Dividend-oriented overseas ETFs offer even more yield. The iShares International Select Dividend and Schwab International Dividend Equity ETFs yield around 6%, about double the yield on U.S. dividend-oriented ETFs.
The United Kingdom is a particularly rich source of income—and its dividends are exempt from withholding taxes widely imposed by other countries. The iShares MSCI United Kingdom ETF has a dividend over 4%, while big British companies like Shell, HSBC, and GSK yield 4%, and BP yields 6%. Diversified U.K.-based miner Rio Tinto is trading at a 52-week low on weakness in iron-ore prices, and yields 6%.
One drawback: Non-U.S. companies often pay annual or semiannual dividends that don’t have the predictability of quarterly U.S. payments.
U.S. Dividend Stocks
Investors don’t have to look hard to find 3%-plus yields in the U.S. after most industry groups underperformed the S&P 500 last year.
Healthcare stocks look appealing after two poor years relative to the overall market. Merck and Johnson & Johnson yield over 3%, while former pharmaceutical leader Pfizer sports a dividend of more than 6%. Energy stocks sold off in December, and the result is that Exxon Mobil and Chevron yield almost 4% and 4.5%, respectively. Food stocks like Kraft Heinz yield 4% or more, while PepsiCo yields 3.5% after two straight years of stock-price losses.
Among the many dividend-oriented mutual funds and ETFs are Vanguard High Dividend Yield and Schwab US Dividend Equity, which both yield over 3%. The more-concentrated Schwab fund’s biggest holdings include BlackRock, Home Depot, and Cisco Systems.
The laggard ProShares S&P 500 Dividend Aristocrats ETF returned just 7% in 2024. It tracks companies with records of raising dividends for at least 25 years, including Emerson Electric, Walmart, and Cincinnati Financial. That approach historically has proved to be profitable and could return to form in 2025.
Real Estate Investment Trusts
On the surface, REITs had a tough 2024. The Vanguard Real Estate ETF returned just 4% in 2024, but that masked a wide disparity in returns across real estate sectors.
Apartment REITs had midteens returns, while the formerly hot warehouse operators declined by a similar amount. New York office owners such as SL Green Realty and mall operators like Simon Property Group were standouts in 2024.
The setup for 2025 looks favorable, with REITs yielding about 4% on average and the stocks trading for about 22 times adjusted funds from operations, in line with historical averages.
Jason Yablon, the head of listed real estate at Cohen & Steers, tells Barron’s that favorable supply/demand fundamentals should support the REIT market in 2025. Higher construction costs provide an umbrella for property owners to raise rents. One negative is the relatively tight spreads of real estate cap rates—effectively, the yields on property—versus Treasuries.
Cohen & Steers favors data centers, cellphone towers, single-family residential, and senior housing for 2025, all of which have demand tailwinds. The Cohen & Steers Quality Income Realty closed-end fund yields 8%.
Piper Sandler analyst Alex Goldfarb is also bullish. “Occupancies are healthy, economic growth positive, new supply declining, and lenders not eager to foreclose, which combined with Trump’s victory, create an apparent euphoric atmosphere,” he writes.
Energy Pipelines
There is no AI without electricity. And much of that juice will come from natural gas, which is transported by pipeline operators like Kinder Morgan and Williams Cos.
That story powered the pipeline sector as the broad Alerian Midstream Energy index gained over 40% last year, doubling the 20% gain from the Alerian MLP ETF, which has less gas exposure.
Rob Thummel, a senior portfolio manager at Tortoise EcoFin, sees total return potential of 12%-plus in 2025 supported by dividend growth of 5% to 7% and a return to higher valuation levels. The average stock yields 5%, with high yielders like Energy Transfer and Enterprise Products Partners at about 6.5%.
The pipeline sector has largely decoupled from the rest of the energy industry as the electricity demand growth story has taken hold. “Compelling relative and absolute valuations mean you haven’t missed it despite the recent outperformance,” Thummel tells Barron’s.
The Tortoise Energy Infrastructure closed-end fund yields 10%, in part due to leverage, and trades at a 10% discount to net asset value. Its largest investments include gas-focused Williams and Targa Resources. The Alerian MLP ETF yields 8%.
Electric Utilities
The sleepy sector came to life in 2024. Normally considered a defensive income play, the Utilities Select Sector SPDR ETF nearly matched the return of the S&P 500 as utilities, led by independent powers like Constellation Energy, capitalized on the huge power needs of data centers constructed by Microsoft, Meta Platforms, and other tech giants.
As Barron’s argued recently, some regulated utilities also stand to benefit. Jay Rhame, CEO of Reaves Asset Management, favors “vertically integrated utilities with access to power, transmission, and natural gas, and [which] are located in business-friendly regulatory jurisdictions.” These include Entergy, NiSource, and Xcel Energy.
Yet most utilities still offer decent payouts, with the biggest, including Southern Co. and Duke Energy, yielding 3.5% or more, above the 3% yield on the Utilities Select Sector SPDR.
Utility stocks generally trade for high-teens price/earnings multiples of projected 2025 earnings. Profit growth is expected to be in the 5% to 7% annual range in the coming years, with data-center-exposed utilities like Entergy expected to better that. Dividends should rise at a similar clip. For those willing to tolerate more risk, there is the Virtus Reaves Utilities ETF, with a focus on the independent power producers like Constellation, which rose 91% last year, and Vistra, which gained more than 200% in 2024. The growthier Virtus ETF yields just 1.7%.
Mortgage Securities
This often-overlooked area offers a combination of high credit quality and attractive yields in the 5% to 6% range. Much of the market consists of so-called agency mortgage securities issued by Ginnie Mae, Fannie Mae, and Freddie Mac that carry little to no credit risk.
Mortgage securities are one of the few areas of taxable bond markets in which yield spreads versus Treasuries are appealing relative to history. The yield gap between mortgage securities and U.S. Treasuries is about 1.25 percentage points, which looks appealing relative to high-grade corporate bonds at less than a point, says Harley Bassman, managing partner at Simplify Asset Management.
Mortgage issues have complex cash flows and are difficult for do-it-yourself investors to negotiate. Big funds include the iShares MBS ETF, which mainly holds below-market MBS with 3% rates. Another choice is the Simplify MBS ETF, which owns higher-rate securities and yields nearly 6%.
There is also a large market in so-called nonagency mortgage securities, whose credit quality has been enhanced by the huge amounts of equity in U.S. homes after years of price appreciation. The $30 billion DoubleLine Total Return Bond fund has expertise in this sector. Run by longtime MBS manager Jeffrey Gundlach, it yields about 6%.
Treasuries
Treasuries were one of the few parts of the bond market with some negative returns in 2024—and that could be a good setup for investors in 2025.
Long-term debt was hit particularly hard last year, with the widely followed ETF posting a negative 8% return as yields rose, causing bond prices to fall.
The good news: Treasuries now offer nice yields, with long-term bonds yielding almost 4.75%. Long-term Treasuries could return 20% if yields fall back to 4%. Plus, there is an exemption of interest from state and local taxes, a nice benefit for investors in high-tax states like New York and California holding bonds in taxable accounts. Risks include big federal deficits and a potential uptick in inflation, but Treasuries still offer sleep-at-night security and a potential hedge if the economy unexpectedly weakens in 2025.
Investors can buy Treasuries directly on the TreasuryDirect website and via brokers, but low-cost ETFs offer a good alternative due to low fees, monthly income, and liquidity. IShares offers a group of ETFs such as iShares 1-3 Year Treasury Bond, iShares 7-10 Year Treasury Bond, and iShares 20+ Year Treasury Bond, which should work no matter what maturity an investor is looking for.
Junk Bonds
Junk bonds returned roughly 8% in 2024 based on a key ICE BofA index, after a 13% gain in 2023. Not bad. Unfortunately, the yield premium relative to Treasuries is near the tightest level in 20 years on economic optimism, low default rates, and high demand for yield. The average junk bond yields about 7% now.
Kevin Loome, manager of the T. Rowe Price US High Yield fund, thinks tight spreads—now in the 2.5% to 3% range relative to Treasuries—could persist “given supportive fundamentals,” notably low defaults and buying by yield-focused investors. But most of the return—he sees similar gains to last year—will have to come from the yield, “given tight spreads levels and limited room for capital appreciation,” he says. The fund’s top holdings include bonds from Six Flags Entertainment and pipeline operator Enbridge.
The iShares iBoxx $ High Yield Corporate Bond ETF—one of the largest dedicated to the asset class, with $15 billion under management—yields almost 7%. Its largest holding is Charter Communications debt. Closed-end junk and high-yield loan funds carry higher yields due in part to leverage. The BlackRock Corporate High Yield and Nuveen Floating Rate Income funds yield over 9% and trade close to their NAVs.
Convertibles
The stock/bond hybrids returned about 10% in 2024, in line with small-to mid-cap equity indexes, whose constituents make up most of the $280 billion market.
A standout was MicroStrategy, the big Bitcoin holder, which is the largest convertible issuer at nearly 5% of the market. Its stock rose over 300% and was the biggest contributor to the convertible market’s return.
Michael Youngworth, head of convertibles strategy at BofA Securities, sees a 7% to 9% total return for the market and some $60 billion to $65 billion of issuance during 2025.
There isn’t a lot of yield in convertibles, though. The largest ETF, SPDR Bloomberg Convertible Securities, yields about 2%, while MicroStrategy has sold converts with zero yields. That means most returns will probably have to come from appreciation of the underlying equities.
Municipals
Municipal bonds remain a favorite of individual investors due to tax benefits. But not all munis are created equal.
With yields tight relative to Treasuries, triple-A municipal bonds with maturities of 10 years or less offer little appeal for investors in all but the highest federal tax brackets. There are better values among long-term munis, with bonds from such high-quality issuers as the Los Angeles International airport and the Port Authority of New York and New Jersey yielding 4% to 4.5%.
One hot area in the $4 trillion muni market is the high-yield sector. Returns in 2024 were in the double digits for funds like First Eagle High Yield Municipal, against less than 2% for the $41 billion iShares National Muni Bond ETF.
John Miller, who heads the First Eagle fund, says the average yield on high-yield munis fell to about 5.5% from 6% over the past 12 months. High-yield state tobacco bonds, he says, have been hurt by sharp declines in smoking. He favors debt from issuers such as Brightline, which has built a passenger railroad in between Miami and Orlando, Fla. It recently issued a 10% tax-exempt bond.
For more risk-averse investors, funds like the $77 billion Vanguard Intermediate-Term Tax-Exempt now yield about 3.3%.
Cash
Treasury bills—U.S. government securities maturing in a year or less—are an excellent place to stash cash and offer an alternative to money-market funds and certificates of deposit. They are one of Warren Buffett’s favorite investments, with Berkshire Hathaway
holding over $200 billion. T-bills, which track changes in short rates administered by the Federal Reserve, now yield about 4.25%.
Investors had been expecting that T-bill yields would fall sharply in 2025, but with the Fed potentially on hold for the next few months, they could stay high for longer than expected. Like other Treasuries, they can be bought via the Treasury’s website, brokers, and liquid ETFs. Two of the most popular are the iShares 0-3 Month Treasury Bond and SPDR Bloomberg 1-3 Month T-Bill ETFs, both now yielding 4.4%.
Preferred Stocks
Considering the rise in long Treasury yields in 2024, preferred stock performed well. This year might not be as easy.
Preferred stock typically has no maturity date, making the securities often act like super-long bonds. Last year’s rising T-bond yields should have been problematic—the market got crunched in 2022, when Treasury rates surged—but the iShares Preferred & Income Securities ETF, the largest dedicated to the class, returned 7% in 2024. Like junk bonds, the yield gap between preferreds and Treasuries tightened in 2024, particularly on $25 par preferreds popular with retail investors due to the liquidity of New York Stock Exchange listings.
Banks are the largest preferred issuers, and $25 par issues from JPMorgan Chase, Wells Fargo, and Morgan Stanley yield in the 5.5% to 6% range, about a point more than 30-year Treasuries. Better values are in $1,000 preferreds, which trade over the counter like bonds and are harder for retail investors to access. Citigroup, for instance, has a 6.75% issue trading around par, or its original offering price of 100 cents on the dollar. Preferred dividends generally are taxed favorably, like on common stocks.
The iShares preferred ETF holds many $25 par issues, while the First Trust Institutional Preferred Securities & Income ETF focuses on the $1,000 market. Both yield about 6%.
BofA analyst Michael Youngworth tells Barron’s that the lack of new issues bolstered the market in 2024. Supply constraints could loosen in 2025, however, as banks issue preferreds to align with potentially less onerous international capital rules.
