Dividends4Life: Dividend Stocks Safer Than Treasuries

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Dividend Stocks Safer Than Treasuries

Posted by D4L | Tuesday, September 06, 2011 | | 0 comments »

If you're trying to maximize return and minimize risk, you can't beat a high-yield stock that is a better credit risk than U.S. Treasuries. It sounds crazy but it's true. The rate of insuring against the default of the debt of 70 large U.S. companies is lower than that to insure the debt of the U.S. government. Meanwhile, the record-low yields on U.S. Treasuries - the 10-year note dropped below 2% recently and isn't much higher now - have put them below the yields of several major U.S. companies.

It cost about 50 basis points (bp) to insure U.S. Treasury bonds against default for five years; that translates to a cost of $50,000 annually to insure $10 million of bonds. But the cost to insure the debt of dozens of U.S. companies is less than 50 bp; for some it's as low as 30 bp. The Proctor & Gamble Co. (NYSE:PG) and The Coca-Cola Co. (NYSE:KO) make tangible products that people want to buy - and they do so at tightly controlled costs. So it's clear that companies like these can repay modest levels of debt under almost any circumstances.

Source: Market Oracle

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