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14 of the DJIA 30

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April 16, 2012 – Comments (5)

... thats's the number of DJIA stocks with a dividend yield higher than the yield on their ~ten year bonds.  I knew there were a handful of Dow stocks in that situation, but was surprised to find nearly half.

This yield inversion means these companies could issue debt to finance a share buyback and improve cash flow. That doesn't mean they should, just that they could.  It also means income investors considering these companies' bonds should also be considering the stock.

Stocks aren't bonds and the risks are different.  But, I believe many of the stocks listed in the article offer lower risk and will produce more income over the next ten years than their bonds. I'm counting on at least the three I own (INTC, MCD, T) to outperform their own bonds.

Fool on!

Russ

5 Comments – Post Your Own

#1) On April 16, 2012 at 7:05 PM, ElCid16 (95.76) wrote:

http://www.ritholtz.com/blog/2012/04/dividend-paying-stocks-meet-rule-7/#more-78268

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#2) On April 16, 2012 at 8:24 PM, awallejr (81.54) wrote:

Personally I agree with stocks over bonds, but I suspect the boomers are just too jaded with the stock market in light of the last few years.

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#3) On April 16, 2012 at 11:21 PM, rd80 (98.30) wrote:

ElCid16 - Many thanks for the link.  The piece raises some good points. From the article:
In the case of the blue chip, mega-cap international dividend-paying stocks, the biggest risk to the story may be the belief that a 3% dividend yield will somehow prevent the wild swings in stock prices that we have been experiencing for the last 13 or 14 years.

I don't think - and hope I didn't give the impression - that a solid dividend prevents price swings in a stock.  In fact, I'd love to see a few of my core holdings take a big price dive so I could buy more.

What I think investors need to recognize is that today's extremely low bond yields present risks for price drops similar to risks in the stock market.  Investors in long-dated gov't and high quality corp bonds simply aren't being compensated for interest rate, inflation and related price risk.  Some argue the price risk goes away if the bond is held to maturity.  I'd counter that by pointing out that blue-chip stock holders can hold indefinitely as well. 

awallejr - Boomers may be nervous about the stock market, but folks who need investment income don't have many good choices in today's markets.  With ZIRP and operation twist, about the only sources for good yield are lower quality bonds or dividend paying stocks.  There are risks, but if you need investment income, there simply aren't many choices.

Thanks for the comments.

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#4) On April 16, 2012 at 11:28 PM, awallejr (81.54) wrote:

 There are risks, but if you need investment income, there simply aren't many choices.

I don't disagree, but "if you build it they won't come."  If the crash of fall of '08 didn't scare them certainly the crash in early '09 did, then the flash crash and the incredible volatility in 2011 certainly did.  Seriously the boomers aren't returning. 

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#5) On April 17, 2012 at 11:46 AM, Momentum21 (83.58) wrote:

thanks Russ...STD/SAN is buying back shares and seems to represent a compelling story at these levels. Riskier of course...

I also like your Feb piece which takes valuations into consideration. STO and some of the oil majors look better to me here than a "T" over the long haul. 

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