Bond yield too low, how about high yield stock?

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WhiteMaxima
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Bond yield too low, how about high yield stock?

Post by WhiteMaxima » Wed Jul 03, 2019 2:47 pm

10 yield treasure yield drop below 2%. many high divdend stock (T, VZ, MO, PG, MSFT, JNJ) pays >4% dividend. for aging population, instead of bond, why not high dividend stock. Some might argue the stock might drop. But you can re-invest dividend and buy at discount. Also high dividend stock is usually low PE.

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CAsage
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Re: Bond yield too low, how about high yield stock?

Post by CAsage » Wed Jul 03, 2019 2:49 pm

WhiteMaxima wrote:
Wed Jul 03, 2019 2:47 pm
10 yield treasure yield drop below 2%. many high divdend stock (T, VZ, MSFT, JNJ) pays >4% dividend. for aging population, instead of bond, why not high dividend stock. Some might argue the stock might drop. But you can re-invest dividend and buy at discount. Also high dividend stock is usually low PE.
Because the stock may drop. Exactly. High dividend stocks may not stay that way in a recession, in which case you can lose both capital and have your income drop! Interest rates may be low... but so is inflation.. Adapt. Most people need to invest to live off that money (i.e. take it out) , and are not continually reinvesting....
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.

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goodenyou
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Re: Bond yield too low, how about high yield stock?

Post by goodenyou » Wed Jul 03, 2019 2:51 pm

Buy Altria (MO). It has a 6.6+% dividend. It's been hammered over the past few years. It's down 35% from it's all time high. It has a PE of 15.
"Ignorance more frequently begets confidence than does knowledge" | Do you know how to make a rain dance work? Dance until it rains.

Thesaints
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Re: Bond yield too low, how about high yield stock?

Post by Thesaints » Wed Jul 03, 2019 2:51 pm

WhiteMaxima wrote:
Wed Jul 03, 2019 2:47 pm
10 yield treasure yield drop below 2%. many high divdend stock (T, VZ, MO, PG, MSFT, JNJ) pays >4% dividend. for aging population, instead of bond, why not high dividend stock. Some might argue the stock might drop. But you can re-invest dividend and buy at discount. Also high dividend stock is usually low PE.
Stocks are not bonds and high-yield bonds are not investment grade bonds. A very common mistake in a low interest rates environment is to take on a lot more risk trying to recover yield.

If T, VZ, etc. payed a safe >4% dividend, nobody would buy treasuries (at this price).

maj
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Re: Bond yield too low, how about high yield stock?

Post by maj » Wed Jul 03, 2019 3:01 pm

If you do seek income from equity, I suggest you look carefully at Vanguard High Dividend Yield Fund/etf.

You can offset some of the risk of sector investment through diversification. And it is free.

VHDYX (VYM) has a history of moderate, steady dividend increases. Morningstar gives it high praise for the quality of its diversification and market cap methodology. For $3000 investment you have the Admiral class shares.

peace

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WhiteMaxima
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Re: Bond yield too low, how about high yield stock?

Post by WhiteMaxima » Wed Jul 03, 2019 3:05 pm

maj wrote:
Wed Jul 03, 2019 3:01 pm
If you do seek income from equity, I suggest you look carefully at Vanguard High Dividend Yield Fund/etf.

You can offset some of the risk of sector investment through diversification. And it is free.

VHDYX (VYM) has a history of moderate, steady dividend increases. Morningstar gives it high praise for the quality of its diversification and market cap methodology. For $3000 investment you have the Admiral class shares.

peace
That's what I am doing now in my Roth and IRA to minimize the tax penalty.

Vanguard Fan 1367
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Re: Bond yield too low, how about high yield stock?

Post by Vanguard Fan 1367 » Wed Jul 03, 2019 3:21 pm

WhiteMaxima wrote:
Wed Jul 03, 2019 2:47 pm
10 yield treasure yield drop below 2%. many high divdend stock (T, VZ, MO, PG, MSFT, JNJ) pays >4% dividend. for aging population, instead of bond, why not high dividend stock. Some might argue the stock might drop. But you can re-invest dividend and buy at discount. Also high dividend stock is usually low PE.
You are not the only one thinking that way. Instead of high dividend stocks I tried Vanguard's High Dividend Yield fund in 2014 and have done fabulously well with it. I believe that Warren Buffet isn't too excited about bonds.

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Re: Bond yield too low, how about high yield stock?

Post by Thesaints » Wed Jul 03, 2019 3:27 pm

Vanguard Fan 1367 wrote:
Wed Jul 03, 2019 3:21 pm
Instead of high dividend stocks I tried Vanguard's High Dividend Yield fund in 2014 and have done fabulously well with it.
What's the difference ?

Stock market since 2014 is up >10%/yr. Hard not to do fabulously well, btw.

alex_686
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Re: Bond yield too low, how about high yield stock?

Post by alex_686 » Wed Jul 03, 2019 3:28 pm

Sigh, divided yield - no matter how you cut it - is a poor indicator. There is no theory behind it. The statistical power behind it is low, and what evidence it does have suggests that you are taking on above average market risk. It blows up during tines of stress.

Returns and risk are linked, no getting around that. I would look at a Low Beta Index fund.

columbia
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Re: Bond yield too low, how about high yield stock?

Post by columbia » Wed Jul 03, 2019 3:38 pm

I think that junk bonds are what you are looking for.

I do not own such a fund and can’t imagine that I ever would.

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patrick013
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Re: Bond yield too low, how about high yield stock?

Post by patrick013 » Thu Jul 04, 2019 11:32 am

WhiteMaxima wrote:
Wed Jul 03, 2019 2:47 pm
10 yield treasure yield drop below 2%. many high divdend stock (T, VZ, MO, PG, MSFT, JNJ) pays >4% dividend. for aging population, instead of bond, why not high dividend stock. Some might argue the stock might drop. But you can re-invest dividend and buy at discount. Also high dividend stock is usually low PE.
According to their website ticker SPYD is yielding over 4% at current trading price. One of those 50-100 stock
dividend indexes that competes with the 500 quite well even after taxes. Some REIT's for a bonus.
age in bonds, buy-and-hold, 10 year business cycle

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Re: Bond yield too low, how about high yield stock?

Post by Vanguard Fan 1367 » Fri Nov 08, 2019 4:01 am

Thesaints wrote:
Wed Jul 03, 2019 3:27 pm
Vanguard Fan 1367 wrote:
Wed Jul 03, 2019 3:21 pm
Instead of high dividend stocks I tried Vanguard's High Dividend Yield fund in 2014 and have done fabulously well with it.
What's the difference ?

Stock market since 2014 is up >10%/yr. Hard not to do fabulously well, btw.
I like the diversity of a mutual fund as opposed to individual stocks.

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Re: Bond yield too low, how about high yield stock?

Post by Valuethinker » Fri Nov 08, 2019 5:07 am

WhiteMaxima wrote:
Wed Jul 03, 2019 2:47 pm
10 yield treasure yield drop below 2%. many high divdend stock (T, VZ, MO, PG, MSFT, JNJ) pays >4% dividend. for aging population, instead of bond, why not high dividend stock. Some might argue the stock might drop. But you can re-invest dividend and buy at discount. Also high dividend stock is usually low PE.
Look at the performance in 2008/9.

These are not bond funds. These are stock funds, with higher risk than the market as a whole.

A company often goes to high yield because it has poor growth prospects in its markets, or because the market is expecting a dividend cut. Indeed in early 2008 many of the big financial stocks were trading at very good yield premiums to the market. Then RBS, AIG, FNMA, FMAC, Bear Sterns, Lehman etc. went to the wall, and as part of the bailout, bank dividends were stopped.

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Re: Bond yield too low, how about high yield stock?

Post by Valuethinker » Fri Nov 08, 2019 5:10 am

Vanguard Fan 1367 wrote:
Fri Nov 08, 2019 4:01 am
Thesaints wrote:
Wed Jul 03, 2019 3:27 pm
Vanguard Fan 1367 wrote:
Wed Jul 03, 2019 3:21 pm
Instead of high dividend stocks I tried Vanguard's High Dividend Yield fund in 2014 and have done fabulously well with it.
What's the difference ?

Stock market since 2014 is up >10%/yr. Hard not to do fabulously well, btw.
I like the diversity of a mutual fund as opposed to individual stocks.
That does not answer Ts's question?

Your yield fund has likely not outperformed the market as a whole. A general Value fund probably has similar behaviour.

There's empirical evidence for "dividend achiever" stocks I believe, but the Low Volatility funds probably catch a lot of that (I worry about the valuation of low vol stocks right now - these things have really been bid up).

One would expect high yield stocks to do well in an environment of falling interest rates.

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nisiprius
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Re: Bond yield too low, how about high yield stock?

Post by nisiprius » Fri Nov 08, 2019 6:18 am

Bonds are legal contracts to pay you specific numbers of dollars on specific dates. The number of dollars does not change with the fluctuating market value of the bond; even if the value of the bond goes down, it still pays the same number of dollars with every coupon. The issuer must pay you if it possibly can. An investment-grade bond means that a ratings agency thinks the issuer is in good financial shape and has a good enough safety margin to stay in business and keep paying its bills even if business is bad.

Stocks do not guarantee dividends. Dividends are not debt. The company does not owe you dividends. They are just a tradition. When business turns bad, companies can and do cut dividends, skip dividends, or stop paying them entirely. In fact, if a company cash, it must stop paying dividends--debt, including things like payroll, and interest on loans including its bonds, must be paid first.

Stocks are riskier than bonds. How much riskier is a question involving many considerations. Some investors can tolerate more risk than others, some investors can tolerate some kinds of risk better than others. Bonds are not risk-free, inflation risk being an important one. A diversified mutual fund with hundreds of stocks, held for long periods of time, bought slowly over time and then sold slowly over time, is less risky than buying a single stock on margin and selling it a month later.

Of course, the long statistical average is that bonds pay less than stocks. It has to be that way. Nobody in their right mind would buy stocks if they could make just as much money with guaranteed payments from bonds.

Do not fool yourself into thinking that stock dividends will always be just as high as bond interest payment,s just because the dividends on a certain stock is as high as current interest rates right now.

Like all investors, retirees must decide how much risk they are willing to take.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

bberris
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Re: Bond yield too low, how about high yield stock?

Post by bberris » Fri Nov 08, 2019 7:38 am

You might want to own bonds to lower the risk of a portfolio. High yield stocks don't do that. If you don't want to own bonds, you need to have a higher risk tolerance.

22twain
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Re: Bond yield too low, how about high yield stock?

Post by 22twain » Fri Nov 08, 2019 9:19 am

maj wrote:
Wed Jul 03, 2019 3:01 pm
If you do seek income from equity, I suggest you look carefully at Vanguard High Dividend Yield Fund/etf.

You can offset some of the risk of sector investment through diversification. And it is free.

VHDYX (VYM) has a history of moderate, steady dividend increases.
It also has just about the same total return as Vanguard Total Stock Market (VTSMX), i.e. with dividends reinvested. See for example the Morningstar comparison growth chart that was posted recently here:

viewtopic.php?f=10&t=294211&p=4824247#p4824247

In fact, VTSMX comes out a bit ahead overall, for the time period shown, although I doubt the difference is significant.

It seems to me that the main advantage of VHDYX over VTSMX is convenience (i.e. not having to sell shares) if you're in the withdrawal stage and its dividends are enough to cover your needs.
My investing princiPLEs do not include absolutely preserving princiPAL.

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Re: Bond yield too low, how about high yield stock?

Post by tibbitts » Fri Nov 08, 2019 9:49 am

Vanguard Fan 1367 wrote:
Wed Jul 03, 2019 3:21 pm
WhiteMaxima wrote:
Wed Jul 03, 2019 2:47 pm
10 yield treasure yield drop below 2%. many high divdend stock (T, VZ, MO, PG, MSFT, JNJ) pays >4% dividend. for aging population, instead of bond, why not high dividend stock. Some might argue the stock might drop. But you can re-invest dividend and buy at discount. Also high dividend stock is usually low PE.
You are not the only one thinking that way. Instead of high dividend stocks I tried Vanguard's High Dividend Yield fund in 2014 and have done fabulously well with it. I believe that Warren Buffet isn't too excited about bonds.
If I had billions of dollars invested, I might not own any bonds either.

Valuethinker
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Re: Bond yield too low, how about high yield stock?

Post by Valuethinker » Fri Nov 08, 2019 10:27 am

tibbitts wrote:
Fri Nov 08, 2019 9:49 am
Vanguard Fan 1367 wrote:
Wed Jul 03, 2019 3:21 pm
WhiteMaxima wrote:
Wed Jul 03, 2019 2:47 pm
10 yield treasure yield drop below 2%. many high divdend stock (T, VZ, MO, PG, MSFT, JNJ) pays >4% dividend. for aging population, instead of bond, why not high dividend stock. Some might argue the stock might drop. But you can re-invest dividend and buy at discount. Also high dividend stock is usually low PE.
You are not the only one thinking that way. Instead of high dividend stocks I tried Vanguard's High Dividend Yield fund in 2014 and have done fabulously well with it. I believe that Warren Buffet isn't too excited about bonds.
If I had billions of dollars invested, I might not own any bonds either.
AFAIK it is also not true?

BH is an insurance company. By regulation, insurance companies need to hold assets to cover their policy liabilities.

That would include 10s of billions of dollars in bonds of high credit quality. US Treasury bonds in fact.

BH also does not pay a dividend. Buffett has written a letter to shareholders explaining why it would be a waste of their money.

MichCPA
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Re: Bond yield too low, how about high yield stock?

Post by MichCPA » Fri Nov 08, 2019 10:50 am

nisiprius wrote:
Fri Nov 08, 2019 6:18 am
Bonds are legal contracts to pay you specific numbers of dollars on specific dates. The number of dollars does not change with the fluctuating market value of the bond; even if the value of the bond goes down, it still pays the same number of dollars with every coupon. The issuer must pay you if it possibly can. An investment-grade bond means that a ratings agency thinks the issuer is in good financial shape and has a good enough safety margin to stay in business and keep paying its bills even if business is bad.

Stocks do not guarantee dividends. Dividends are not debt. The company does not owe you dividends. They are just a tradition. When business turns bad, companies can and do cut dividends, skip dividends, or stop paying them entirely. In fact, if a company cash, it must stop paying dividends--debt, including things like payroll, and interest on loans including its bonds, must be paid first.

Stocks are riskier than bonds. How much riskier is a question involving many considerations. Some investors can tolerate more risk than others, some investors can tolerate some kinds of risk better than others. Bonds are not risk-free, inflation risk being an important one. A diversified mutual fund with hundreds of stocks, held for long periods of time, bought slowly over time and then sold slowly over time, is less risky than buying a single stock on margin and selling it a month later.

Of course, the long statistical average is that bonds pay less than stocks. It has to be that way. Nobody in their right mind would buy stocks if they could make just as much money with guaranteed payments from bonds.

Do not fool yourself into thinking that stock dividends will always be just as high as bond interest payment,s just because the dividends on a certain stock is as high as current interest rates right now.

Like all investors, retirees must decide how much risk they are willing to take.
To build on this, stock dividend yields can be high due to a huge erosion in stock price. For example, when oil prices drop and take oil stocks with them, yields can move into the 5-6% range, but that does not indicate a sustainable payout. It indicates a high likelyhood of a cut.

I can endorse a dividend growth strategy as a quality tilt, but that strategy doesn't have a yield that is very different from the market overall.

IMO, the best way to address OPs yield problem is to look at Vanguard's High yield bond fund. It's higher quality that most high yield funds, so the yield premium isn't as high but the risk is lower. There is no free lunch when chasing yield.

Admiral
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Re: Bond yield too low, how about high yield stock?

Post by Admiral » Fri Nov 08, 2019 10:58 am

WhiteMaxima wrote:
Wed Jul 03, 2019 2:47 pm
10 yield treasure yield drop below 2%. many high divdend stock (T, VZ, MO, PG, MSFT, JNJ) pays >4% dividend. for aging population, instead of bond, why not high dividend stock. Some might argue the stock might drop. But you can re-invest dividend and buy at discount. Also high dividend stock is usually low PE.
I assume you hold bonds to reduce the volatility and risk of your portfolio, not to chase yield.

If you don't care about either volatility or risk, then by all means get rid of you bonds and buy stocks. Just understand why you're doing it, and the consequences.

Everyone hates bonds when the stock market sets records three times a week...

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firebirdparts
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Re: Bond yield too low, how about high yield stock?

Post by firebirdparts » Fri Nov 08, 2019 11:11 am

Human beings set the price of stocks.

High yield stocks are high yield because nobody wants to own them at a higher price. They vary in what's wrong with them, but just be sure there is something wrong with each of them compared to a "glamour" stock. So there's no free lunch, but there could be adequate income temporarily. Some could also improve and surprise all the doubters. Either way, you could get sufficient income from them.

If treasury yields approach the yield of ordinary (not high yield) stocks, then to me, it might make a ton of sense to argue that 100% quality equities might be safe enough. Just something to think about. The safe distribution rate we might predict from a 100% stock portfolio might be pretty attractive in a zero% nominal yield environment.
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balbrec2
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Re: Bond yield too low, how about high yield stock?

Post by balbrec2 » Fri Nov 08, 2019 11:47 am

WhiteMaxima wrote:
Wed Jul 03, 2019 2:47 pm
10 yield treasure yield drop below 2%. many high divdend stock (T, VZ, MO, PG, MSFT, JNJ) pays >4% dividend. for aging population, instead of bond, why not high dividend stock. Some might argue the stock might drop. But you can re-invest dividend and buy at discount. Also high dividend stock is usually low PE.
Don't know where you get your data from but JNJ pays 2.89 % div, not > 4%

3funder
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Re: Bond yield too low, how about high yield stock?

Post by 3funder » Fri Nov 08, 2019 1:05 pm

CAsage wrote:
Wed Jul 03, 2019 2:49 pm
WhiteMaxima wrote:
Wed Jul 03, 2019 2:47 pm
10 yield treasure yield drop below 2%. many high divdend stock (T, VZ, MSFT, JNJ) pays >4% dividend. for aging population, instead of bond, why not high dividend stock. Some might argue the stock might drop. But you can re-invest dividend and buy at discount. Also high dividend stock is usually low PE.
Because the stock may drop. Exactly. High dividend stocks may not stay that way in a recession, in which case you can lose both capital and have your income drop! Interest rates may be low... but so is inflation.. Adapt. Most people need to invest to live off that money (i.e. take it out) , and are not continually reinvesting....
+1

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Re: Bond yield too low, how about high yield stock?

Post by TropikThunder » Fri Nov 08, 2019 1:18 pm

WhiteMaxima wrote:
Wed Jul 03, 2019 2:47 pm
Some might argue the stock might drop. But you can re-invest dividend and buy at discount.
The only reason to focus on high yield stocks is if you want/need the income and have a psychological aversion to selling shares. High yield funds don’t outperform the broad market in total return (although their lower volatility can give a better Sharpe ratio).

If you don’t need the income from dividends, then you shouldn’t tilt towards them. If you tilt to dividends because you need the income, then you can’t reinvest them. So you completely defeat the purpose by reinvesting the dividends.

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