Where To Find Real Income In 2026

The bond market just pulled off its best year since 2020, returning 7% and proving it’s not dead yet. But for income investors looking at 2026, the real opportunities are hiding in beaten-down corners of the market that nobody’s talking about.

Let me walk you through where the smart money’s positioning for income this year.

The Big Picture

The traditional 60/40 portfolio generated about 15% in 2025, with the S&P 500 returning nearly 20% and bonds delivering that solid 7%. International equity markets staged a long-awaited revival, returning nearly 30% with dividend yields multiple times higher than the S&P 500’s meager 1%.

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

Looking at 2026, yields across the board are good but not spectacular. You can get 3% to 5% on municipals, 6% to 10% on junk bonds, 10%+ on private credit loans through business development companies, 6% on preferred stock, 5% on mortgage securities, and 3.5% to nearly 5% on Treasuries.

Within stocks, you’re looking at 3%+ yields on pipelines, REITs, telecoms, consumer staples, and pharmaceuticals. That’s something real, given the S&P 500’s historic low yield.

I’m sticking with an equity bias for 2026. Bond yields aren’t bad, but they barely cover the inflation rate 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.

Energy Pipelines: The Overlooked Monster Yields

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 stocks like Kinder Morgan and Energy Transfer finished the year in the red.

But these stocks offer monster yields, dividend growth, and improving balance sheets enabling more stock buybacks. Expect 10%+ total returns in 2026 driven by 5% average dividend yields and comparable dividend growth.

Williams Cos. and other pipeline companies exposed to the growing natural gas market for data centers look solid. But for maximum yield, consider master limited partnerships like Energy Transfer and MPLX, both sporting 8% dividend yields. MPLX recently boosted its payout by 12%.

For fund investors, the partnership-oriented Alerian MLP ETF yields 8%, while the Global X MLP & Energy Infrastructure ETF yields 5%. Closed-end funds like Tortoise Energy Infrastructure and ClearBridge Energy Midstream Opportunity offer even higher yields.

REITs: Last Year’s Loser, This Year’s Setup

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 looks better.

Investor sentiment isn’t great, but the stocks are relatively cheap with reasonable growth. Expect 10% total returns, driven by a nearly 4% annual dividend and funds from operations growth of about 5%.

One positive is the disconnect between cheaper public REITs relative to private market values. That’s driving take-private deals like Alexander & Baldwin, purchased by a Blackstone fund. More deals could come in 2026.

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 are generally cheaper, more transparent, and have better balance sheets.

SL Green Realty, the leading Manhattan office REIT, is benefiting from strength in Midtown rents and looks positioned for a strong year.

Foreign Dividend Stocks: The Decade-Long Wait Is Over

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. The dollar fell 10% against the euro in 2025.

Overseas stocks are cheaper than in the U.S. and yield more because international investors and corporate management prefer 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 4% to 5%.

The United Kingdom delivered over 30% returns in dollar terms in 2025. 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: Maximum Pain, Maximum Opportunity

Few sectors are as unloved as cable and telecom right now.

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

The wireless oligopoly of AT&T, Verizon, and T-Mobile has grown more competitive as a new Verizon CEO seeks to boost 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, but the stock market underperformance has created attractive entry points.

Comcast trades at seven times 2026 projected earnings with 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.

Business Development Companies: Getting Paid for Controversy

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%+ yields at a time when many public junk bonds yield just 7%.

Lower interest rates have forced many BDCs to reduce dividends, something likely to continue in 2026. But tough times mean bigger yields. The VanEck BDC Income ETF was down 15% in 2025 but now yields over 11%.

Focus on BDCs that invest in senior secured loans, the highest-credit-quality assets in the sector. Buy one of the many BDCs trading at a discount to net asset value, which offers a cushion. The Morgan Stanley Direct Lending fund has nearly all its assets in senior secured loans, yields over 11%, and trades at nearly a 20% discount to its NAV.

Electric Utilities: The AI Boom’s Backdoor Play

Electric utilities are at the nexus of the AI boom, 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 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 State Street Utilities Select Sector SPDR ETF yields 2.8%, but many individual utilities yield 3% to 4%.

Earnings growth is accelerating, with many regulated utilities targeting high-single digit earnings growth. A potential problem 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.

Among regulated companies, Entergy is projecting 8%+ annual earnings growth through the end of the decade. Xcel Energy, CMS Energy, and NextEra Energy also look solid.

Mortgage Securities: The Overlooked Fixed Income Winner

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

Even with lower yields than a year ago, mortgage securities look better than 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 has a 5.2% yield, thanks to riskier positions in higher yielding nonagency securities.

Emerging Markets Debt: The Huge Overlooked Sector

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

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

Mexican and Brazilian five-year dollar debt now yields about 6%, while local currency debt can yield over 10%.

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 room to cut rates while local yields remain elevated.

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%.

The Bottom Line

Energy pipelines and REITs were laggards in 2025 but now look appealing, with dividends of 4%+ and the potential for 10%+ total returns. That could stack up well versus the S&P 500 after three straight years of outsize returns.

Consumer, drug, cable, and telecom stocks are out of favor with 3% to 7% yields. They’re solid bond substitutes with upside if AI 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%. Warren Buffett carries over $350 billion at Berkshire, favoring Treasury bills over bonds.

Several wild cards loom for 2026: inflation, the Federal Reserve, and the economy. The Fed is expected to cut short-term rates twice in 2026, and inflation is forecast to run at 2.5% to 3%. Any surprises could change the outlook.

The opportunities exist. They’re just sitting in beaten-down sectors while everyone chases the same crowded trades.