He told investors to seek out yield through dividend-paying stocks, high-yield debt and municipal bonds.
“Companies are flush with cash,” Kapito said. “They’re raising their dividends and they're buying back their stock. We calculated about $340 billion of stock buybacks this year.”
While there are opportunities for dividends as high as 8 percent, Kapito said he tends to be more conservative and is looking in the 4 percent to 5 percent range.
He said he also doesn’t think the looming "fiscal cliff" – when a host of federal tax cuts expire and automatic spending cuts kick in at the end of the year – will change companies’ approach to paying out dividends. The dividend tax could possibly go up to as high as 43 percent if Congress fails to reach an agreement.
“Companies don’t necessarily look at the tax rate on dividends when they decide to increase dividends,” Kapito said. While taxes are an issue to be concerned about, Kapito said “it isn’t a reason to stop buying dividend stocks.”
(Related: Top Dividend Yielders).
Kapito also likes high-yield corporate debt, which he noted is trading at 10 times the five-year Treasury for the first time since 2008.
Within municipals, Kapito likes transportation issues and infrastructure. “If you can get 4 percent tax free, we think that’s a good idea,” he said.
“We want to be income hogs,” Kapito concluded.