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Subject:  Div Stocks vs. Bonds, Again Date:  4/13/2013  4:29 PM
Author:  globalist2013 Number:  34851 of 35576

To buy a div stock is to hope to receive an income-stream and, possibly, some cap-gains. To buy the debt of the same corporate issuer is to hope to receive an income-stream and, possibly, some cap-gains. So, the speculative game shares common elements. You’ve gotta get out of the stock (or bond) at no worse a price than you paid. Meanwhile, you’ve gotta hope that the issuer doesn’t change its div policy (or file Chapter 11). Additionally, you’ve gotta discount your income-stream and cap-gains by taxes and inflation.

Typically (though anecdotally), buying the common will offer about 3.5x total money that buying the debt would for the simple reason that stocks are about that much riskier than bonds. Obviously, that 3.5x risk-premium isn’t a stable, dependable, set-in-stone number, and I did a recent write-up of a situation where buying the debt (instead of the common) ended up being the better bet. Also, as you reduce the risk-difference between ‘stocks’ as an asset-classes and ‘bonds’ as an asset-classes by trafficking in bonds whose risk profile approaches those of an “average” div stock, your total gains (coupons not reinvested) begin to match those achieved by div stock holders (divs not reinvested), and multi-year, total gains exceeding 100% aren’t impossible.

So, how you fare in either game depends on how you manage your trades. If you do something really stupid, like over-pay (for the stock or bond), or over-stay (in the stock or the bond), you’re going to lose money no matter the fact that you received some dividends or coupons. But bonds do offer the promise of maturity, and that makes price fluctuations -