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Bond Bubble Brewing

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August 03, 2010 – Comments (2)

McDonald's recent bond issue, which included a 10-year with a 3.5% coupon, was a head slapper.  The stock yields over 3% and is likely to raise the dividend this fall. 

What were those bond buyers thinking?  This fall's dividend hike could well have the stock payout exceeding the bond.  And by the end of 2011, odds of those bonds having a yield premium over the stock at today's price are about the same as taking a long road trip and not seeing a Golden Arches somewhere near a highway exit. In short, the bonds look expensive, at least relative to the stock.

Bond Bubble Brewing takes a look at some other companies where bond yields don't look like a great deal compared to the stock payout and makes a case (or at least tries) that bonds are bubbling.

Feel free to bubble on in with your opinion here or at the article.  I'd be particularly interested in hearing from anyone who thinks the bonds are a good deal at these yields.

Fool on!

Russ

Disclosure:  Long MCD and CVX (which is mentioned in the article)

 

2 Comments – Post Your Own

#1) On August 03, 2010 at 8:34 PM, Option1307 (29.71) wrote:

I won't touch those bonds with, well anything!

Nice write up.

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#2) On August 03, 2010 at 9:37 PM, ChrisGraley (29.76) wrote:

You hit the nail on the head!

The stock is still cheap though. 

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