Hello, YieldAlley readers! In this issue:

🇺🇸 How to Navigate the Tariff Circus (Mr. Money Mustache)

📚 Microsoft sued by authors over use of books in AI training (Reuters)

🏝️ Half of all private-sector workers in the U.S. have no access to a retirement plan (CBS)

💰 How America Saves 2025 (Vanguard)

🧑‍💻 More of Us Are Putting in Extra Hours After the Workday (WSJ)

As we reach the halfway point of 2025, the income investing landscape has shifted dramatically from where it stood just a few years ago. The era of near-zero interest rates feels like a distant memory, replaced by an environment where yield-hungry investors actually have meaningful choices again. This presents both opportunities and complexities that deserve a thoughtful reassessment.

The transformation has been particularly striking for bond investors, who endured years of anemic returns only to find themselves in a position where fixed-income securities are finally offering competitive yields. But bonds aren't the only game in town, and the relative attractiveness of different income sources has evolved in ways that might surprise investors still operating with pre-2022 assumptions.

Perhaps the most significant development has been bonds' return to relevance. After a decade where the broad bond market barely managed 2% annual returns while stocks soared 13% annually, fixed-income securities are having something of a moment. Through June, U.S. bonds have essentially matched the S&P 500's performance, both generating returns near 4%.

What makes this particularly noteworthy is that Treasury bonds now yield around 4%, a level that seemed impossibly high just a few years ago. This represents a fundamental shift in the risk-return equation. When the earnings yield on the S&P 500, essentially the inverse of its price-to-earnings ratio, sits below 5%, bonds offering 4% yields with government backing start to look genuinely attractive rather than like a necessary portfolio evil.

The appeal extends beyond Treasuries. High-quality municipal bonds now offer yields between 3% and 5%, with their tax-equivalent yields reaching over 7% for investors in higher tax brackets. For someone in a high-tax state facing combined federal and state rates approaching 50%, a 4.5% municipal bond yield translates to a taxable equivalent yield of roughly 9%.

Dividend-paying stocks continue to offer the dual appeal of income and growth potential, but their relative attractiveness has become more nuanced. The S&P 500's dividend yield of just 1.2% pales next to what's available elsewhere, but that's not the whole story.

Healthcare stocks, trading at their lowest relative valuation to the broader market in 25 years, offer some compelling opportunities. Companies like Merck yielding 4% and Pfizer at 7% represent established businesses with substantial cash flows, though investors need to weigh sector-specific headwinds. Similarly, out-of-favor food companies like General Mills and Kraft Heinz offer yields approaching 5% and 6%, respectively, though these come with their own set of challenges around changing consumer preferences.

Real estate investment trusts occupy an interesting middle ground, with the sector yielding an average of 4% while offering exposure to tangible assets. Apartment REITs, despite facing near-term supply challenges, may benefit from reduced new construction in coming years. Industrial REITs like Prologis, which owns the warehouses powering e-commerce, trade near five-year lows while yielding nearly 4%.

One area that's gained traction is international dividend stocks, particularly as overseas markets have rallied and the dollar has weakened. Foreign companies typically favor dividends over share buybacks, creating opportunities for yields exceeding 3% across broad market indices. Some focused international dividend funds are yielding 4% to 5%, even after strong performance this year.

As long-time YieldAlley readers know, cash has evolved from a parking place into a legitimate asset class. Money market funds and Treasury bills yielding around 4% now exceed inflation by roughly two percentage points. This creates an unusual situation where truly risk-free assets offer positive real returns, something that was virtually impossible during the previous decade.

Treasury bill ETFs have attracted record inflows as investors follow Warren Buffett's lead in holding substantial cash positions. With six-month Treasury bills offering yields above 4%, some investors are questioning whether they need to take additional risk for potentially modest incremental returns.

The rise in Treasury Inflation-Protected Securities (TIPS) reflects ongoing inflation concerns, though their appeal depends heavily on expectations. With break-even inflation rates around 2.3%, TIPS only outperform regular Treasuries if inflation exceeds that level. However, for investors particularly concerned about unexpected inflation, perhaps driven by tariff policies or other economic disruptions, TIPS offer government-backed protection that other assets can't match.

The key insight about TIPS is that they protect against unexpected inflation rather than inflation itself. With the current break-even rate already pricing in 2.3% annual inflation, investors need to believe inflation will meaningfully exceed that level to justify TIPS over conventional Treasuries.

As we move through the second half of 2025, the income investing landscape offers more viable options than it has in over a decade. The Federal Reserve's potential for rate cuts later this year could benefit longer-duration bonds while potentially pressuring money market yields. Meanwhile, the relative stability of dividend payments from quality companies becomes more attractive when compared to the volatility many growth stocks have experienced.

This means investors must carefully evaluate their options, rather than going for the simple "reach for yield" strategies that dominated previous cycles. Instead of defaulting to the highest-yielding option, investors can now construct more balanced approaches that consider total return potential, tax efficiency, and risk management within the context of yields that actually matter.

Government Money Market Funds (7-Day Yields)

Brokered CD Rates (6-Month Rate)

ETFs (30-Day Yields)

Amazon has rolled out a targeted promotional offer for Discover cardholders ahead of Prime Day, providing a straightforward $20 discount for adding their card to Amazon's payment wallet. The promotion requires minimal effort and offers immediate value for eligible participants.

This promotion represents excellent value for minimal effort, essentially providing a 100% return on the minimum purchase requirement. The straightforward qualification process - simply adding a payment method and using a promo code - makes this accessible to most Discover cardholders. However, the invitation-only nature means eligibility varies by customer, and the 30-day payment window requires prompt action after card addition. The restriction to Amazon-sold items excludes marketplace sellers but still covers millions of products, making this a solid opportunity for routine Amazon purchases.