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 --once a debt position is put on-- more tolerable than those suffered by those who prefer to hold stocks. Doing well with “Div Stocks versus Bonds” comes down to your ability to understand and to manage the risks of either game. Most investors think stocks are sexy, bonds are boring, and focus their efforts on the former. But most investors cannot pull more money out of markets (on an after taxes, after-inflation basis) than they bring to them, as the Dalbar 20-year studies of investor results clearly document. So it really doesn't matter which game they choose. They're going to lose money in either case. But bond-investing really is the easier game to learn and do well with. Charlie
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