Just when income investors were ready to give up on the bond market, it went and had its best year since 2020. The outlook is good for 2026, too, despite some growing risks.

How troublesome has the bond market been? Many investors were abandoning the historical 60/40 mix of stocks and bonds coming into 2025 after several tough years for the fixed-income side of that strategy. But the blend generated about 16% in 2025 as the S&P 500 index returned nearly 20%, and bonds, as measured by the broad iShares Core U.S. Aggregate Bond exchange-traded fund, returned 3%.

Income investors had plenty of other choices, as well. One highlight: a long-awaited revival in international equity markets, where dividend yields are a multiple of the 1% yield available on the S&P 500 and broad indexes returned nearly 30%.

In the U.S., most dividend strategies trailed the S&P 500. The Vanguard High Dividend Yield ETF returned 16%, while the $70 billion Schwab US Dividend Equity ETF turned in just 5%. Electric utilities returned 16%, helped by the data center boom, while real estate investment trusts were notable laggards, rising just 4%.

Looking ahead to 2026, yields are generally good—not great—in stocks and bonds. Within fixed income, investors can get 3% to 5% yields on municipals, 6% to 10% on junk bonds, 10%-plus on private credit loans held by business development companies, 6% yields on preferred stock, 5% yields on mortgage securities, and 3.5% to nearly 5% yields on Treasuries.

Within the stock market, there are yields of 3% or more on a range of stocks, including pipelines, REITs, telecoms, consumer staples, and pharmaceuticals. That’s something, particularly given the S&P 500’s historic low yield.

Barron’s consistently favored stocks over bonds for income in the past decade, and we’re sticking with an equity bias for 2026.

Bond yields aren’t bad, but they don’t offer much more than the inflation rate, now running just under 3%, especially after taxes. Yield differentials on high-grade corporate bonds relative to Treasuries are under one percentage point, near 25-year lows. The gap for junk bonds is less than three points.

We prefer energy pipelines and REITs, which were laggards in 2025 but now look appealing, with dividends of 4% or more and the potential for 10%-plus total returns. That could stack up well versus the S&P 500 after the index’s three straight years of outsize returns.

Consumer, drug, cable, and telecom stocks also are out of favor and have 3% to 7% yields. They’re nice bond substitutes with upside if artificial intelligence and tech falter in 2026 and investors get more defensive.

Don’t forget cash. There’s nothing wrong with holding money-market funds or Treasury bills, now yielding about 3.5%. Berkshire Hathaway Chairman Warren Buffett loves cash and carries over $350 billion at the company, favoring Treasury bills over bonds.

There are several wild cards for 2026—inflation, the Federal Reserve, and the economy. The Fed is expected to cut short-term rates twice in 2026, and inflation, as measured by the consumer price index, is forecast to run at 2.5% to 3%. Any surprises could change the outlook.

As Barron’s does annually, we rank 12 sectors in order of their appeal for 2026 and discuss the prospects for each. We had a good record in 2025. We favored international dividend payers as our top choice, and they handily beat the 11 other sectors. We correctly favored electric utilities and mortgage securities but were too upbeat on pipelines and REITs.

Here’s our assessment of the best places to find income in 2026.

U.S. Dividend Stocks 

Dividend-paying stocks had a mediocre 2026 but still offer bondlike yields and appreciation potential, making them an ideal choice for income investors.

There are hundreds of ETFs and mutual funds focused on dividends, but two of 2025’s underperformers are worth a look: Schwab US Dividend Equity, which now yields almost 4%, and ProShares S&P 500 Dividend Aristocrats, which invests in companies with 25 consecutive years or more of annual dividend increases and yields 2.5%.

Buying companies with an impressive dividend record has generated strong results over time, but the ProShares fund has had a single-digit return for two straight years, well behind the market.

The larger holdings in the ProShares fund include lithium play Albemarle, Cardinal Health, and Nucor, the largest U.S. steel maker, while the Schwab fund is led by drug stocks Merck and Amgen, as well as Coca-Cola and PepsiCo. All four yield about 3%.

Another approach is to buy the 10 highest-yielding stocks in the Dow Jones Industrial Average at the end of each year. That venerable approach did well in 2025, returning 18% through Dec. 26, three percentage points ahead of the Dow industrials. Barron’s isn’t aware of any fund that follows the strategy, but the Invesco Dow Jones Industrial Average Dividend ETF weights the 30 stocks in the benchmark by their dividends, with Verizon Communications, which yields 6.8%, and Merck, with a 3.2% yield, on top.

Energy Pipelines

Pipeline stocks don’t have much exposure to oil prices, but crude’s 15% drop to less than $60 a barrel still sent a chill through the sector. The Alerian MLP ETF returned 6% in 2025, and individual stocks like Kinder Morgan and Energy Transfer finished the year in the red.

The stocks, however, offer monster yields, dividend growth, and improving balance sheets that enable more stock buybacks. Rob Thummel, a senior portfolio manager at Tortoise Capital, which invests in pipeline operators, sees 10%-plus total returns in 2026 driven by 5% average dividend yields and comparable dividend growth.

Investors have favored Williams Cos. and other pipeline companies exposed to the growing market for natural gas, a key fuel for the electricity-powered data centers. But with most pipelines now housed in simpler corporate structures, investors can find more yield in master limited partnerships, which generate a K-1. Thummel likes Energy Transfer and MPLX, two partnerships with 8% dividend yields. MPLX recently boosted its payout by 12%.

For fund investors, the $partnership-oriented Alerian MLP ETF(AMLP)$ yields 8%, while the Global X MLP & Energy Infrastructure ETF, which limits its MLP exposure to 25%, yields 5%. Closed-end funds like Tortoise Energy Infrastructure and ClearBridge Energy Midstream Opportunity offer even higher yields.

REITs

Real estate investment trusts were the worst-performing sector in the S&P 500 in 2025, with the Vanguard Real Estate ETF returning just 4%. This year could be better.

J.P. Morgan Securities REIT analyst Anthony Paolone recently wrote that investor sentiment isn’t great, but the stocks “are relatively cheap with reasonable growth.” He sees 10% total returns, driven by a nearly 4% annual dividend and growth in funds from operations, a key REIT cash-flow metric, of about 5%.

One positive is a disconnect between shares of cheaper public REITs relative to private-market values. That is driving take-private deals like Alexander & Baldwin, which is due to be purchased by a Blackstone fund. More deals could come in 2026, writes Piper Sandler analyst Alexander Goldfarb.

Apartment REITs like Equity Residential and AvalonBay Communities trade below private-market values and now yield about 4%. They could get a boost if investors abandon private REIT funds for public markets, which generally are cheaper, more transparent, and have better balance sheets.

Goldfarb favors SL Green Realty, the leading Manhattan office REIT, which is benefiting from the strength in Midtown rents. Barron’s named SL Green a top pick for 2026 among 10 stocks.

Foreign Dividend Stocks 

After a decade of badly trailing the S&P 500, international stocks finally had a great year. The run overseas may not be over, as increased fiscal spending and deregulation, particularly in Japan, stand to boost economies and markets.

International stocks could also get a lift from a weak dollar, which increases returns to U.S. investors in foreign companies, and which President Donald Trump seems to favor. The dollar fell 10% against the euro in 2025.

Overseas stocks are cheaper than in the U.S., and they yield more than their American counterparts because of a preference among international investors and overseas corporate management for dividends over buybacks.

The European stock market yields an average of 3%, and Japan, 2%, while international high-dividend ETFs like iShares International Select Dividend and Schwab International Dividend Equity yield even more, at 4% to 5%.

Barron’s highlighted the United Kingdom as a good spot for dividends a year ago, and that market is up over 30% in dollar terms. Some remaining British high-yielders with liquid American depositary receipts include BP at 6%, Shell at 4%, and British American Tobacco at 5.8%.

Cable and Telecom

Few sectors of the market are as unloved as cable and telecom.

The cable story unwound in 2025 as high-speed internet access, the industry’s most important product, faced intensifying competition from AT&T’s and Verizon’s fiber rollout, wireless internet access from T-Mobile US and others, and Elon Musk’s Starlink.

The wireless industry oligopoly of AT&T, Verizon, and T-Mobile has also grown more competitive as a new Verizon CEO seeks to boost its subscriber base. For income investors, the main plays are Verizon with a nearly 7% dividend yield, as well as AT&T and cable leader Comcast, each paying 4.5%. “Competition remains intense,” writes Morgan Stanley analyst Benjamin Swinburne. The stock-market underperformance, however, “has created more-attractive entry points for investors.” Swinburne favors AT&T, though Verizon is cheaper.

Barron’s recently highlighted Comcast as one of its 10 top stock picks for 2026 due to its low valuation—it trades at seven times 2026 projected earnings—and an ample dividend. It could also benefit from the potential spinoff of its valuable NBCUniversal media, TV, and theme-park business following a smaller spin of CNBC and other cable properties into Versant Media Group at the start of 2026.

BDCs 

Private credit is probably the most controversial area of the fixed-income markets—and investors get paid for it by investing in publicly traded business development companies.

The $1 trillion of loans to private junk-grade companies often carry 10%-plus yields at a time when many public junk bonds yield just 7%.

There have been some credit cracks in private credit in recent months, though proponents point to what they consider to be strong underwriting standards and ample historical returns.

Lower interest rates, which mean less income from the floating-rate loans that BDCs make, have forced many to reduce their dividends, something that is likely to continue in 2026. Yet tough times mean bigger yields. The VanEck BDC Income ETF, which offers broad exposure to large BDCs, was down 15% in 2025 but now yields over 11%.

Investors should focus on BDCs that invest in senior secured loans, the highest-credit-quality assets in the sector. And it’s best to buy one of the many BDCs trading at a discount to net asset value, which offers a cushion. One option: The Morgan Stanley Direct Lending fund, which has nearly all of its assets in senior secured loans, yields over 11%, and trades at nearly a 20% discount to its NAV.

Utilities 

Boring no longer, electric utilities are at the nexus of the AI boom, and they are ramping up capital spending to meet growing demand. They’re a lower-risk way to play data center growth—and get a nice dividend.

The sector, as measured by the State Street Utilities Select Sector SPDR ETF, returned about 16% in 2025 but now trades for under 18 times projected 2026 earnings, a wider than usual discount to the S&P 500. The ETF yields 2.8%, but many individual utilities yield in the 3% to 4% range.

The bull case is that earnings growth is accelerating, with many regulated utilities targeting high-single digit earnings growth, better than most consumer staples. A potential problem, however, is affordability: The spending boom led to a 7% rise in consumer electricity costs in the past year, and political backlash threatens to curb returns on new projects and earnings growth.

Among regulated companies, J.P. Morgan analyst Jeremy Tronet favors Entergy, which is projecting 8%-plus annual earnings growth through the end of the decade, as well as Xcel Energy, CMS Energy, and NextEra Energy, which owns Florida Power & Light.

Nuclear plays like Constellation Energy have been the sector’s biggest winner, but they trade at a premium at closer to 30 times forward earnings and carry dividend yields of 1% or less.

Mortgage Securities 

Most fixed-income markets benefited from tightening yield premiums relative to Treasuries in 2025, and that went for mortgage-backed securities, too. The result: returns of more than 7% from ETFs dedicated to the asset class.

Agency mortgage securities from Fannie Mae and Freddie Mac, which benefit from an implied government guarantee, dominate the market with more than $6 trillion outstanding. They now yield about 5%, against more than 5.5% a year ago. The yield gap is now about one percentage point above the 10-year Treasury yield, a quarter-point tighter over the past year.

Even with lower yields, Russell Brownback, deputy chief investment officer of global fixed income at BlackRock, favors the mortgage market over U.S. investment-grade corporate bonds that have even tighter spreads.

The largest ETF, the $39 billion iShares MBS, yields about 4%, while the Simplify MBS ETF has a higher yield at about 6% but less appreciation potential. The $31 billion DoubleLine Total Return Bond fund, run by longtime mortgage specialist Jeffrey Gundlach, has a 5.2% yield, thanks to riskier positions in higher yielding nonagency securities.

Emerging Markets Debt

The huge and overlooked sector deserves a closer look, given attractive returns on debt issued by countries like Brazil and Mexico.

Emerging market countries issue debt in dollars and local currency. The dollar bonds carry much lower yields since they eliminate currency risk.

The $1.5 trillion of hard-currency debt—mostly dollar-denominated—has generated returns comparable to the U.S. junk market, according to Janus Henderson. Returns were in the double digits in 2025, making emerging markets a top-performing fixed-income sector.

BlackRock’s Brownback calls the sector one of the most attractive areas of the global bond market. Mexican and Brazilian five-year dollar debt now yields about 6%, while local currency debt can yield over 10%.

The traditional knocks against emerging markets are profligate spending, unstable currencies, and inflation risk, but many developing countries show more financial restraint than the U.S., where the deficit totaled $1.8 trillion in the latest fiscal year.

“Strong debt management and responsible monetary policies have provided EMs with room to cut rates, while local yields remain elevated,” write analysts at VanEck.

The largest ETF, iShares J.P. Morgan USD Emerging Markets Bond, now yields about 5.5% while the VanEck J.P. Morgan EM Local Currency Bond ETF yields about 6%.

Preferred Stock 

The $350 billion market is popular with many individuals due to its reasonably high dividends, now averaging about 6%, that usually are favorably taxed.

Banks account for about half of the market, but they have cut back on issuance as capital requirements eased, according to UBS preferred stock analyst Frank Sileo. He notes that utilities have become big issuers, as they fund large capital-spending plans.

Retail investors favor preferreds with $25 face values that trade like stocks on the New York Stock Exchange. Issues include the JPMorgan 4.20% series M and the Wells Fargo 4.25% series D, which yield about 6%. The iShares Preferred & Income Securities ETF, devoted to these preferreds, yields about 6%. The First Trust Institutional Preferred Securities & Income ETF also yields nearly 6% and offers access to the $1,000 face value preferred market geared mainly to institutions.

Strategy, which issued $8 billion of preferreds in 2025, was the big new player in the market, as it raised money to fund Bitcoin purchases. Barron’s wrote favorably about the preferred, which carry yields of 8% to 12%, arguing that they amount to cheap Bitcoin-backed securities. Strategy has since built a $2 billion reserve, funded by equity sales, to pay some $800 million of annual preferred dividends.

Municipals 

Individuals love municipal bonds, but there isn’t a lot of appeal in the sector today.

Munis with five- to 10-year maturities and top-grade Triple-A ratings yield 2.5% to 2.75%. That’s roughly two-thirds of comparable Treasury yields, which means little after-tax benefit, given a top federal tax rate of 37%.

There is better value in long-term munis that yield 4% to 4.5% among high-grade issuers, but they carry interest-rate risk and tend to have unfavorable redemption features that reduce upside potential.

The $41 billion iShares National Muni ETF, which invests in long-term bonds, returned just 4% last year, while the $83 billion Vanguard Intermediate-Term Tax-Exempt ETF returned 5% and now yields about 3%.

High-yield munis, which often have 5%-plus yields, could do well after lagging behind the investment-grade market in 2025, according to MacKay Municipal Markets. The biggest high-yield muni issue is a $3 billion tobacco bond from Buckeye, an Ohio entity, that yields over 6%.

Treasuries 

Treasuries aren’t as dull as they seem, and they have attributes—liquidity, security, and some tax benefits—favorable to income-seeking investors. And with corporate-bond spreads near their tightest levels in 25 years, the case for Treasuries gets stronger.

Treasuries yield from 3.5% on two-year issues to 4.75% on long-term bonds. That’s a wider-than-usual gap that ought to make investors consider 30-year bonds, which can gain value if the stock market or economy sinks. The negatives are mostly macro—U.S. budget deficits and the threat of higher inflation.

Big ETFs, including iShares 1-3 Year Treasury Bond, iShares 7-10 Year Treasury Bond, and iShares 20+ Year Treasury Bond, offer liquidity and low fees. For those most bullish on rates, consider the Pimco 25+ Year Zero Coupon U.S. Treasury Index ETF, which could appreciate 25% if rates fall by a percentage point.

For risk-averse investors, there are increasingly popular T-bill ETFs, which now yield more than 3.75%. The $68 billion iShares 0-3 Month Treasury Bond was one of the fastest-growing bond ETFs in 2025.

Investors can buy Treasuries at regular government auctions through the TreasuryDirect website or through banks and brokers, but selling can be trickier in an opaque over-the-counter market.