Ask Matt: Are dividends the only source of income?

Q: Are dividends the only source of income?

A: Dividends paid by common stock are often the first place investors look when searching for income. But it’s not the only place.

There’s no question there are lucrative dividend yields available on common stock. Some of the highest yields among big companies, like energy company Williams (WMB), compute storage maker Seagate Technology (STX) and telecom Frontier Communications (FTR), pay anywhere between 8% and 10%. But investors willing to go a bit off the beaten path can find other sources of income. One of the best alternatives to common stock dividends are preferred shares. These shares are kind of a hybrid between stock and bonds. Like bonds, preferred shares pay income that tends to be higher than what’s paid on common shares, but like dividends on common stock, preferred dividends can be suspended. You can buy preferred shares issued by individual companies if you want to fine tune your investments. There are also diversified perferred stock investments like the iShares U.S. Preferred Stock exchange-traded fund (PFF), which is currently yielding more than 5.5%. That certainly tops the roughly 2% yield of common stock measured by the Standard & Poor’s 500.

Paste BN markets reporter Matt Krantz answers a different reader question every weekday. To submit a question, e-mail Matt at mkrantz@usatoday.com or on Twitter @mattkrantz.