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By Jason Stipp | 08-19-2010 03:09 PM

Ways to Play It Safer in the Search for Extra Yield

Morningstar's Christine Benz offers stock and fund ideas to boost the yield in the margins of your portfolio.

Jason Stipp: I'm Jason Stipp for Morningstar. In this difficult yield environment, we know that investors are searching high and low for a little bit of extra income. Morningstar's Christine Benz, our director of personal finance, recently did a video talking about some yield traps, some areas you want to avoid in this endeavor. But she is here today to talk about some safer ways to pick up a little bit of extra yield.

Christine, thanks for joining me.

Christine Benz: Jason, nice to be here.

Stipp: So, the first thing that I want to touch on is that, for some of these suggestions we're not saying dump every income investment that you have right now and buy all these because of the extra yield. How should you think about these ideas before we get started?

Benz: Right. So I'm not saying to completely redo your asset allocation. So a couple of the ideas I have are stock related. I'm not saying that dividend-yielding stocks are an appropriate substitute for bonds. These are mainly things you can do around the margins of your portfolio.

Stipp: So you mentioned stocks. I think it's a good place to start as a potential income booster for your portfolio. What are you seeing as a good way to do that when you are looking at the stocks front?

Benz: Well, I was very compelled by Josh Peters' video this week talking about the dividend yield on Johnson & Johnson stock versus what the new bonds are yielding and how you are actually picking up a higher yield on the stocks than you are in the bonds. It's not something that you typically see--not a relationship that you typically see. And of course, the risk potential of the stock is much higher than the J&J bond, but you do have some capital appreciation potential plus that higher yield, which could be little bit of a cushion even if J&J stock lost money.

So, not just with J&J, but looking at high-quality dividend-paying stocks across the board I think can be a very good strategy. You can pick up a little extra yield and also get some capital appreciation potential.

Stipp: So if you're on, what's a good way to start to narrow down some of those higher-quality choices?

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