Stocks on sale for income investors?
This morning, US treasury bond yields were about 4% for the 10-year, 3% for the 2-year. A while back, I did a quick analysis comparing the long term income stream from bonds to a portfolio of dividend paying stocks. At that time, it took 5-years for the model’s dividend income stream to catch up with the bonds. Since then, stock prices have fallen, raising their dividend yield and bond prices are up, reducing their yield. At this point, there is very little difference between bond yields and the dividend yield of some quality companies. For an investor with a taxable account, the after-tax yield on many dividend paying stocks would exceed the yield on treasuries.
For example, the yields on some of the dividend payers in my CAPS portfolio as of market close on 20 Nov:
BUD – 2.7%
RPM – 4.2%
T – 3.8%
WFC – 4.1%
UL – 2.7%
DEO – 3.7%
Some of these stocks are down for a reason – about 10% of RPM’s income is dependent on residential construction and there’s uncertainty over how much exposure WFC has to bad mortgages. This list isn’t meant to be all inclusive or a recommended buy list, only examples of good companies with dividend yields near or above bond rates. I’m sure there are many other examples.
I have no clue if we’re near a bottom in these stocks. But, the market has discounted dividend paying stocks relative to US treasuries and, IMHO, income investors should be looking at stocks as a good alternative to bonds. I wouldn't back up the truck, but I believe it's a good time to accumulate some good divvy payers. At a minimum, the dividends should help cushion any fall relative to the overall market.
I’m curious what the rest of Fooldom thinks. Is this a good time to start looking at dividend paying stocks? What other income stocks do you like here?
I’ve been busy with work and playing in the Strategy Lab Open lately and haven’t had time to blog much. Somewhere along the line, my stock pitches collected over 100 recs and 29 Fools have picked me as a favorite. Many thanks to all who are part of either group. The positive feedback is appreciated.