Income Rumble - Stocks v Treasuries
As some may know, I've been negative (and wrong) about long-term Treasuries for some time. After 10-year T-notes ended '11 as one of the best performering investments, I decided to run some numbers for a Fool article (not a video).
The match-up is the net present value of the investment cash flow from 10-yr Treasuries against four dividend paying stocks. Since perceived safety is a key point for the government paper, the debt's competitors are the only four U.S. companies with something Treasuries don't have -- a AAA rating from Standard & Poor's. ADP, Microsoft, ExxonMobil and Johnson & Johnson entered the spreadsheet and it was game on. All solid companies even if they aren't all my favorites in their industries. With the brakes on dividend growth rates and share prices flatlined over the next decade, each of the stocks still won handily.
Bottom line - I have no clue what the stock or bond market will do over the next several months, maybe I'll be wrong on bonds a while longer. However, I don't see any probable scenario where quality, dividend paying stocks underperform long bonds looking out over a decade or so. Income investors should be giving quality dividend paying stocks a good look before deciding to lock in puny fixed rates on long-term bonds. I started easing money out of bond funds last year and expect to continue that this year.
Disclosure: Long JNJ, but no position in any other stock mentioned.
As always, feel free to add a comment or question here or at the article.
Happy New Year!