Anything a Bond can do a Stock can do...
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Dec
31
Tim Lambert
Anything a Bond can do a Stock can do Better
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With interest rates rising, bonds are becoming more attractive due to higher yields.

Investors should not be swayed by that as anything that a bond can do, a stock that pays a dividend can do much, much better.  That is especially true for Dividend Aristocrat stocks such as Coca-Cola (NYSE: KO), Exxon Mobil (NYSE: XOM), and Wal-Mart (NYSE: WMT).  To earn the title of a Dividend Aristocrat, a company must have increased its dividend annually for at least 25 years.

That is something an investor will never experience from a bond.

What will also not be enjoyed in the rise in the value of the bond.  That can happen, but nothing like the increase the share price of a stock.  For 2013, Coca-Cola is up more than 16%.  Over the same period, Exxon Mobil has increased by nearly 20%.  For the last year, Wal-Mart has gained almost 20% in share value, too.

The dividend yield tops what would be earned from the debt of a company of a similar value.

Wal-Mart pays a dividend of about 2.40%.  For Coca-Cola, the dividend is 2.73%.  It is more than 2.50% for Exxon Mobil.

Those yields exceed what a bond would pay with a similar rating.

There are some who feel that bonds are more stable.  But that is hardly the case with a Dividend Aristocrat stock such as Exxon Mobil, Coca-Cola, or Wal-Mart.  These companies are so solid that each is a major holding of legendary investor Warren Buffett.  That makes the appeal even more alluring than that for a bond.

 



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