Dividend Stocks Are Not Bond Equivalents

Posted by D4L | Wednesday, January 30, 2013 | | 0 comments »

It was not the first time I've heard the words "bond equivalent" used to describe dividend paying stocks. But hearing a very well-known and widely followed CNBC host and co-anchor use them to describe Verizon Communications (VZ) the other day is what prompted me to write this article. In addition to being a shareholder of Verizon, if you are a shareholder of Johnson & Johnson (JNJ), Procter & Gamble (PG), McDonald's (MCD), AT&T (T), or The Coca-Cola Company (KO), the message of this article is applicable to you.

Let me unequivocally state the following: Stocks are not "bond equivalents." You may have plenty of great reasons for owning shares of any of the companies mentioned above. But if one of those reasons is because you believe they serve as "bond equivalents," you may want to revisit your investment thesis. Here are a few reasons: 1. Common stock is at the bottom of the capital structure, 2. Bonds mature at par. Stocks do not, 3. Despite the fact that certain stocks may be less volatile than the broader market does not mean you should compare them to bonds and 4. There is a level of predictability to bonds that there is not with stocks.

Source: Seeking Alpha

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