Tuesday's stock market selloff has scared flocks of investors into the "safety" of 10-year Treasury notes, driving yields below 3% -- a 14-month low. Of course, higher-priced Treasuries are more susceptible to interest rate risk (if interest rates double, principal value will be halved). Thus, a seemingly innocuous investment may actually be incredibly risky. If this trend continues, fixed-income investors (read: retired persons) will find themselves in a precarious position: How much capital can be sacrificed for current income?
Unfortunately, there are no risk-free investments, but a "dividend acid test" can be used to determine the relative safety of an income investment. Dividend Acid Test Formula
(10-Year Treasury Yield) less than (Stock Dividend Yield) less than (Liability-Adjusted Cash Flow Yield) By ensuring that the stock's dividend yield is less than the liability-adjusted cash flow yield (LACFY), investors can be reasonably confident that an operational incident or upcoming debt maturity won't derail their dividend check.
Source: TheStreet.com
Related Articles:
________________________________________________________________
Subscribe to:
Post Comments (Atom)
Popular Posts Last 30 Days
-
Three dividend-paying pharmaceutical investments to purchase amid the COVID-19 crisis avoid focusing solely on the top contenders for develo...
-
You don't need to pay a big price for a large payout. There are plenty of stocks trading in the single digits that continue to pay regul...
-
After a four-month run of steady gains, September brought sudden, sharp, losses across the board. The NASDAQ, which peaked over 12,000 on Se...
-
There are 65 so-called “dividend aristocrats,” which is the name given to companies that have managed to increase their dividends for 25 con...
-
There is no doubt that being an income investor in today’s bull market isn’t cool. But then again, it never is. No one likes to focus on div...
-
Recently, this stock has outperformed the US Telecom ETF, IYZ, over the past month and quarter, but it still lags IYZ and the S&P over t...
-
Today, we’ve pulled up three ‘Perfect 10’ stocks, which are also fine defensive plays, with dividends yielding 5% or higher. At a time when ...
-
The current correction has provided a sweet entry point for buying into the 5G and cloud storage markets, where the best-of-breed stocks in ...
-
This stock has been an up and down ride, which we've held on for, due to the very attractive yield over cost. Management was able to inc...
-
Looking for more security in the high yield space? Maybe you should consider preferred shares, particularly cumulative preferreds. This secu...
0 comments
Post a Comment
Post a Comment
Note: Only a member of this blog may post a comment.