Dividends4Life: Dividend Stocks Not A Bond Substitute

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Dividend Stocks Not A Bond Substitute

Posted by D4L | Monday, November 21, 2011 | | 1 comments »

Dividend-paying stocks may look attractive in a low-yield market but they are not a substitute for the safety of bonds, according to Vanguard's chief economist. There is no easy answer to what to do when money market funds, long-term Treasury bond funds and municipal bond funds are yielding miniscule interests, Vanguard chief economist Joe Davis said in his recent blog. Some would turn to dividend-paying stocks, but they don't guaranteed better returns, he said.

"Dividend-paying stocks are not bonds," Davis cautioned. "Indeed, by their name, they are stocks and thus are going to possess more of the risk-and-return attributes of stocks than bonds. Income-focused stock funds, be they dividend-paying funds or REIT funds, tend to correlate with the broader equity market." As bonds made their slow but steady climb over the last few years, dividend-paying stocks did better sometimes, but not always, and they sometimes underperformed bonds, he said.

Source: Financial Advisor

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  1. Michael // November 21, 2011 at 3:36 PM

    The return on dividend paying stocks can be enhanced by selling covered calls against them. Often the dividend can be doubled or tripled. Then they can begin to really stack up against bond yields

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