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Stocks v Bonds: Consumer Staples Edition



August 20, 2013 – Comments (3)

With treasury prices down / rates up and dividend stock prices up / rates down over the past year or so, I thought it would be a good idea to toss some stocks and 10-year t-notes into a discounted cash flow blender and see what came out.

Stocks topped the Ts in the model, but it was a lot closer than the last time I tried this. And, the best choice might be none of the above.

Fool on!  Russ

3 Comments – Post Your Own

#1) On August 21, 2013 at 12:16 AM, awallejr (50.36) wrote:

Well Russ I still submit that it is about demographics.  An 80 year old would want those 10 year TBills while a 65 year old might still want to lean towards those bluechips.

I still think that many MLPs, BDCs and REITs work best since they double or triple any yield off either those bluechips or TBills.

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#2) On August 21, 2013 at 2:24 PM, rd80 (96.62) wrote:

I think even the 80 year old might want to be overweight dividend stocks compared to Ts and high quality corporates.  Although, s/he would probably want to skew towards higher current yield.

I agree with you on MLPs. I think there are opps for growth transporting US-produced oil and gas that will overcome rising interest rate headwinds.  I think the outlook for BDCs is similar - improving economy should help offset rate headwinds. 

REITs are a more complicated story since there are such wide range of business areas. I don't own any, but would skew towards areas where an improving economy and/or demographics are helping - industrial, retail, senior care for example. 

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#3) On August 21, 2013 at 4:42 PM, awallejr (50.36) wrote:

I agree, of the 3 groups REITs are the more risky.  Mreits especially.  One REIT I kept advising back in 2009 was MPW.  I bought it for around $4 while it paid an 80 cent a year dividend.  It peaked this year at 17.75 but I sold out around $16 because I felt it did get too far ahead of itself.  I then put the proceeds into AINV, a BDC, selling for around $8 and which also pays an 80 cent a year dividend.  In effect I doubled my income.

Many of these stocks have corrected making them very attractive again. Pundits are doing exactly what I said they would, like with Greece, every day all they talk about is tapering.  We all know it has to happen eventually but that doesn't mean the market will crash accordingly. 

Corporations are flush with cash. They have so much cash they don't know what to do with it so they do all these stock buybacks. That really is a pity because generally I consider that a waste of money unless the stock is trading at or near 52 week lows.  But many corporations are reluctant to expand with all the fiscal uncertainty and onerous regulations.

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