With the S&P 500 Index yielding more than 10-year Treasuries, exchange-traded stock funds with juicy yields might seem quite attractive to many investors.

But watch out. Some of the ETFs focusing on big dividend-paying companies could face major headwinds. Namely, companies underlying these portfolios are likely to be forced to cut their payouts to shareholders in coming quarters.

Remember that since the government is taking equity stakes in a wide range of financial institutions, the TARP bailout may pose significant downward pressure on dividend levels. But regardless of what regulators deem is necessary, simple market economics seem likely to force many pummeled financial service providers to reduce dividends in the future.

So diving into ETFs that are overweighted to Financials probably isn't a good idea right now. After all, how long can investors really expect Bank of America and Citigroup, for example, to keep yielding close to 10%?

The waters are just too rough to go bottom-fishing right now. Volatility has to compress before we'd expect to see a sustainable recovery.

In the meantime, we're building watch lists. We'll wait until stock markets can go 10 days with significantly less intraday volatility to wade back into our long positions. (Obviously, a lot more factors will be involved in a real turnaround. But for now, volatility seems to be the real canary in the gold mine, so to speak.)

With that caveat in mind, here are some alternative investments that can rise in value once the economy starts to slowly climb out of its current abyss—and pay you a nice income at the same time.

Preferred ETFs

With preferred stocks, you get a little more safety than a typical stock fund. They're somewhere between stocks and bonds in terms of volatility. They've lost much less so far this year than the broader stock market and sport double-digit yields.

The attraction of these types of stocks is that shareholders receive "preferred" status over common stockholders, including on dividend payments. That means if a company goes bankrupt, preferred shares get first status over those holding common shares.

And besides greater dividends, preferred stocks aren't as heavily traded. That gives them a more bondlike feel and their prices tend to fluctuate a lot less than stocks in normal times.

But as anyone holding individual preferred stocks will testify today, they retain stocklike risks. A lot of these names continue to free-fall due to the irrational panic in markets across the world.

You've got to be careful with preferred ETFs in these markets since their portfolios are heavily loaded with Financials. There are three preferred stock ETFs on the market: the iShares S&P U.S. Preferred Stock Index Fund (NYSEArca: PFF); the PowerShares Preferred (AMEX: PGX) and the PowerShares Financial Preferred (AMEX: PGF).

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