Dividend Stocks Yielding More Than Bonds

A weird thing happens when investors start seeing signs of a recession or just start convincing themselves that a recession is inevitable and coming soon; interest rates begin to fall, which means bond yields begin to drop. Most investors are told when they start investing that stocks are risky, but they offer better long-term growth, while bonds are safer, but they don’t offer investors as much potential growth.

While these statements may be true during certain situations, they certainly don’t always hold true. Sometimes, stocks may be both less risky and offer higher growth than bonds. I personally believe now be may one of those times.

As things sit now, bonds are offering rather low yields. The three-month treasury is paying 1.78%, the 12-month treasury is paying 1.75%, while the even longer five-year treasury is only offering a yield of 1.56%. The ten-year treasury is at 1.68%, and the 30-year treasury is sitting at 2.13%. These returns are hardly likely to keep up with inflation over those longer periods. Buying an investment that may just keep up with inflation seems somewhat risky to me.

Even the bond ETFs that have performed well year-to-date and pay yields to their investors aren’t currently offering anything much better than what investors can get from Treasuries. The Vanguard Long-Term Corporate Bond ETF (VCLT) which is up 21% year-to-date is offering one of the best yields at 3.5%. But this ETF is rather risky considering if, and when interest rates turn around, this fund will get hit.

On the other hand, certain stocks are currently offering higher yields, while also offering the chance for stock price appreciation, regardless of which way interest rates run. Let’s take a look at a few of my person favorites equity Exchange Traded Funds, which offer both growth and healthy, reliable yields. Continue reading "Dividend Stocks Yielding More Than Bonds"

GE's Recent Dividend Cut Highlights The Problem With Dividend Investing

General Electric (GE) has been paying a dividend to shareholders for 119 consecutive years. But if you look at the history of GE’s dividend, it regularly has been cut. Most recently, just at the end of October, the company lowered its $0.12 per share quarterly dividend down to $0.01 per share quarterly dividend. It should also be noted that its dividend was only at $0.12 per share after the company cut it from $0.24 per share per quarter in November of 2017.

GE’s move to slash its dividend down to the mere bone is just another reminder of the massive downside risks associated with investing in dividend-paying stocks. You see because when GE cut its dividend from $0.24 per share per quarter down to $0.12 per share per quarter, the stock dropped more than 7% from where it was the previous day. The same decline occurred this past October when the dividend was cut from $0.12 down to $0.01; the stock fell 8.7%. Furthermore, since the day prior to the announcement of the first dividend cut, GE stock is down an astonishing 63%.

But just because GE cut its dividend and its stock price has fallen off a cliff doesn’t necessarily mean all dividend-paying stocks are extremely risky. Or more so, that there is no way to lessen the risk associated with dividend-paying stocks. Continue reading "GE's Recent Dividend Cut Highlights The Problem With Dividend Investing"