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Ideas for Income Investors. High Dividend Stocks, Mutual Funds etc.
Bonds Look Morbid When Compared to These Dividend Stocks
Posted by: Dividends4Life (IP Logged)
Date: June 11, 2014 12:52PM
Even hibernating bears know that bonds have essentially been dead money over the last several years. Interest rates are ridiculously low and not likely to improve this year based on Fed comments and the stagnant U.S. economy. What's done is done, so what should we expect to earn from bonds in the future?
Consider these two scenarios:
Best Case Scenario
Interest rates and the price of bonds will remain steady. Although this is the best case scenario, it is quite ugly. Consider the 5/23/2014 Treasury Yields: 1 mo. 0.04%, 3 mo. 0.04%, 6 mo. 0.05%, 1 yr. 0.10%, 2 yr. 0.37%, 3 yr. 0.79%, 5 yr 1.55%, 7 yr 2.09%, 10 yr 2.54%, 20 yr 3.12% and 30 yr 3.40%.
Worse Case Scenario
Interest rates will rise at some point in the future, but is that a good thing for income investors holding bonds? The price of a bond has an inverse relationship with interest rates. That is, when interest rates rise, the price of bonds goes down and when interest rates drop, bond prices increase.
Over the few years, I have reduced my bond allocation and purchased quality blue-chip dividend stocks that are yielding in excess of my bond holdings. Consider these dividend growth stocks that have a current yield equal to or greater than the May 30, 2014, 3.12% yield on 20-year U.S. Treasuries.
Stocks Discussed: MCD, CLX, LMT, COP, VZ, T,
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