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Investing/Strategies / Bonds & Fixed Income Investments
|Subject: Re: Div Stocks vs. Bonds||Date: 4/12/2013 10:58 PM|
|Author: jackcrow||Number: 34849 of 35506|
Bit late to this party.
If he wants to compare junk to equity this way then it is he that is being disingenuous because included in that JNK's"7%" is YTM not simply coupon payments and he is actually comparing a fund to a vague dividend paying stock.
So lets make a more total yield to total yield comparison and use earnings yield to take a sniff at equities. Since the author used JNK lets use SPY, broad asset fund to broad asset fund. SPY price = 158.67, earnings 31.03 = 19.56%.
Where the author is absolutely correct is that there is a different risk profile between bonds, even junk, and equities. Equities, just like JNK, have no maturity their risk is open ended. Both bonds and equities can go to zero. If an equity goes to zero there will be no workout.
Now some very smart people, long ago, decided that a p/e of 8 was/is a good mean average p/e to use when estimating if a stock may have value in it. Currently this 158 SPY price is a p/e of 5, if we revert it to this mean of 8 we get 248.24. A 60% return. Now there are no guarantees this investment will cough up a 19.5% or 60% return but that is the upside that you are taking on for accepting a 2% SPY dividend yield and a 7% JNK dividend yield.
How much risk are you taking on for that upside? Is it worth the risk?
Apparently the author feels that some divi stocks are worth it
This doesn't mean that yield-seekers should stay clear of stocks. In fact, our portfolio at Miller's Money Forever has plenty of dividend-paying stocks.
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