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Jonathan Yates
Detroit Bankruptcy Shows the Superiority of Dividend Stocks

What was most striking in the Detroit bankruptcy is that its bonds were paying less than 6%.  While interest rates are low, it is truly amazing that anyone would buy bonds with such a low yield when there are many fine stocks with comparable or better dividend income components.  In addition, the companies that the shares represent ownership for are in much better shape than Detroit (not saying much, however!)

As examples, there are three solid major oil companies with dividend yields above 5 percent.  Eni Spa (NYSE: E), an Italian oil firm.  Eco Petrol (NYSE: EC), a Colombian oil firm.  China Petroleum and Chemical (NYSE: SNP) has a dividend yield of 5.89%.  Many fine oil companies such as BP (NYSE: BP), ConocoPhillips (NYSE: COP) and Royal Dutch Shell (NYSE: RDS-A) have dividend yields over 4%.

Real estate investment trusts also offer higher yields than Detroit municipal bonds.

Apollo Commercial Real Estate Finance (NYSE: ACI) has a dividend yield of 9.88%.  For Campus Crest Communities (NYSE: CCG), the dividend yield is 5.88%.  There is a 7.88% dividend yield for Gladstone Commercial Corporation (NASDAQ: GOOD).

Once again, this demonstrates the superiority of dividend stocks over bonds.  Whatever a bond can do, a stock with a healthy dividend component can do much better.  Many times, a high dividend can be an indicator of a weak stock: as the price falls, the dividend yield rises.  But that is hardly the case with ConcoPhillips, BP, Chevron and many others that have done very well this year, as the chart below shows.

That is much more than can be said about Detroit!


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