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I "pitch" DIVIDENDS because that is REAL MONEY.... money that I actually spend (quite liberally as you all know! ) and that keeps coming regardless of the paper gain or loss. That's why I like them!
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I am playing devils advocate, all in good spirit, as I probably came off way negative in my first post, but hopefully keep people thinking.
Why dividend stocks vs. corporate bonds? If the focus is the stability in real cash return? (And maybe its, again, trying to keep things 102 and simple).
Take JNJ (Johnson & Johnson) - on a capital gains basis, over the past 5 years the stock has moved alot in terms of volatility, (so timing would matter) but to the day 5 years ago. It was $64.15/sh today is at $64.94/share. Essentially nothing (less with inflation right?). BUT you are earning a 4% dividend yield (annually). Greg has shown how that is cash, its real, its great, and it beats the hell out of a savings account.
But JNJ also has bonds outstanding. The secured debt for a 2016 maturity will earn just above the dividend at 4.7%, a 2021 maturity - 7%. These rates are semi-annual, so there is a small amount more you earn because of compounding.
Yes, bonds are boring, getting capital gains out of them is rare and thats really just getting a higher implied yeild (I know there was a post on this).
But mature dividend stocks generally dont get you much capital gains either, as we discussed. Thats the nature of becoming a high dividend business (you start paying dividends when management and investors believe the capital is better off going to sharholders than into the business). But they come with more risk.
I know we could never imagine JNJ going bankrupt, but 15 years ago did we imagine Sears or Kodak? High dividend mature stocks. We didn't see that coming.
If I owned Kodak stock, I would have initially lost that income stream as they cut dividends to conserve liquidity. And then I would have lost my initial investment completely as the equity holders are last in line.
If I owned the secured bonds, I would have still received my income stream the entire time, and in depending on how bankruptcy comes out, generally over 90% of my face investment.
So yes, its boring, but if we have a diverse portfolio with some growth stocks, and some dividend income stocks. I would say consider the bonds there too as a substitute for the income portion of the portfolio. Assuming everything here is for a long term hold.
I think in summary, the security + the higher income stream can in some cases offset the potential cap. gain + risk of the underlying stock.
Just food for thought. Both great options to earn above savings rate with limited risk.
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) and that keeps coming regardless of the paper gain or loss. That's why I like them!
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