The Motley Fool Discussion Boards

Previous Page

Investing/Strategies / Bonds & Fixed Income Investments

URL:  https://boards.fool.com/sorry-for-barging-in-im-the-guy-who-wrote-the-27802732.aspx

Subject:  Re: Div Stocks vs. Corporate Bonds? Date:  7/10/2009  12:06 PM
Author:  mungofitch Number:  28188 of 37023

(sorry for barging in, I'm the guy who wrote the post over on the BRK board)

Very nice post!

Just one thing I wanted to point out---my suggested slate was not really
a recommended investment per se, but rather an answer to the unasked
question of "IF you start with the assumption of wanting dividend
paying equities, what's a good way to get a reasonable dividend yield
safely without too much investing savvy", the angle of course simply
stealing most of the picks from Berkshire since it's an above-average crowed of firms.

Truthfully I also didn't consider bonds as an alternative for a few
reasons, notably the usual ones: it's just so darned much harder to do
the research, and difficult and very expensive to purchase the things
when you've done it. But mostly because there can be a lot of "hair"
(complexity) on each one. Personally I'm no corporate bond expert
because of my odd tax situation---only sovereigns make any sense for me.
I pay 30% tax on corporate coupons, 0% on sovereign coupons, and 0%
on cap gains so I almost never even look at corporate bonds.
Otherwise I would probably be a big fan and know a lot more.

As for bonds being a viable alternative to the dividend route, it makes
a lot of sense to me. But I think there might be some even better
deals in the preferred share area at the moment.
My example-du-jour is Wells perpetual preferred series L, which has
an effective yield of 9.8% at the moment ($75 payout on the $1000 face
trading at $765 right now). I like that it's perpetual and effectively
non callable. Sure, dividends might be eliminated for a period, but it
seems like a sweet spot in the capital structure depending on your goals.
I sure wish I'd bought more when they were realy cheap earlier in
the year (I got mine at $359), but ain't that always the case.

Compared to bonds, the preferreds are harder to research because of
the wider range of "usual" unusual conditions, but generally much
cheaper and easier to find and buy when you have done so, so to a first
approximation the pain-in-the-rear factor is probably pretty similar.

One thing I wanted to mention in passing---it's very fair and true to point out
that the choice between equities and bonds is very much a choice
between risk and reward. But, I wanted to point out that this is
not a universal rule--within the equity world, unknown to most folks,
the nitwits who conflate volatility with risk and who expect higher
volatility correlated with higher reward have it backwards. Higher
volatility stocks have lower average returns than lower volatility
stocks, fairly steadily and by a wide margin decade after decade,
and the EMH/CAPM religion folks keep believing otherwise. Amazing!

Back off where I belong on the equity boards...

Jim
Copyright 1996-2021 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us