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"

Some Bond ETFs Are Having A Good Year

With the Federal Reserve once again in an “interest rate-cutting” mood, some bond investors are making fantastic returns in 2019. Several bond ETFs are beating the S&P 500 year-to-date, despite the popular index increasing by more than 20% thus far in 2019.

Perhaps you are wondering how boring old bonds could be beating top growth and technology stocks in 2019?

Well, the answer is simple; when interest rates fall, long term bonds that have higher “nearly guaranteed” yields become more valuable. If current 10-year Treasury yields are around 1.75%, but you own an older 10-year Treasury bond that is yielding say 3.0%, investors who are looking for safe, reliable yields, will be willing to pay a nice premium for your older 10-year Treasury bond.

Funds such as the Vanguard Long-Term Corporate Bond ETF (VCLT), the Vanguard Extended Duration Treasury ETF (EDV), and the iShares 20+ Year Treasury Bond ETF (TLT) are all increasing in value as interest rates decline. Year to date, these three ETFs are up 21.37%, 25.01%, and 18.36% respectively, all without using any sort of leverage.

The three bond ETFs mentioned above are all increasing in value while current interest rates fall. However, these three funds and many others like them will do the opposite when interest rates begin to climb higher. But, since the Federal Reserve and other central banks around the world are in rate-cutting mode, investors can reasonably expect rates to stay at their depressed states for some time, if not go even lower. Continue reading "Some Bond ETFs Are Having A Good Year"