Invest in Treasuries? These Stocks Laugh at the Idea.
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It's always the case. As an investment broker I had clients every week asking about treasuries. They know about them, the news mentions the price of treasuries every single day, and people understand them better than equities. You invest this much, you get that much back. Very simple.
Except it's never that simple, actually. There is a lot of potential risk and cost involved in treasuries. I don't mean risk concerning the collapse of the United States, of course. I mean risk that the rate you get won't keep up with the markets or inflation or such. That's a real risk when rates are as low as they are. A new release by the Congressional Budget Office outlines that risk and that rates are expected to climb after the next two years. So locking in for 10 years isn't a great play.
My clients that were after treasuries always wanted to be secure about return. I always talked to them about their concerns and tried to steer them towards high-dividend equities. Good, solid stocks with quality management that provided a history of growth and a solid dividend. My advice to them was to assume a bit more risk and take the return on the dividend as replacing, in their minds, the interest the treasuries would generate. Here's a few that I was fond of mentioning to them.
Consolidated Edison (NYSE: ED)
I know, I know. It sounds like something your parents, or even grandparents, might have invested in. But think about what that implies. It's a firm that's been around for a while and performed for most of it. ConEd supplies power and heat to some of the richest counties in the country. It's also been named one of the top dividend-paying investments. The stock has some ups and downs, but more ups. It's done a good job of coming back from the recession. And a solid 4.36% yield doesn't hurt.
The Clorox Company (NYSE: CLX)
Many of you probably thought Clorox was just a brand, right? Not so. It's a firm in and of itself with several brands outside of its signature bleach product. It's also a firm that has grown more than 75% since it bottomed out during the recession. The firm has also raised its dividend four times since then and now yields 3.15%. Try that growth and income against 2% on treasuries and see which one you like better.
AT&T (NYSE: T)
AT&T is one any investor should know. The telecom giant has been around since forever and been generating returns that whole time. Best known now for its mobile service the company still does a lot of business in local phone exchanges and, believe it or not, advertising in phone books. It's even trying to lock in video communications, now. The stock has seen a growth curve since 2009 with a total increase of 56.28% since its low during the recession. Toss in an astonishing dividend yield of 5.10% and it beats almost anything.
Merck (NYSE: MRK)
Another one that my clients, especially the younger ones (those below 50 years of age) seemed to always overlook. Merck makes drugs. It also does other things, like health care and animal care, but drugs are the main thing. Recently, the firm had a great quarter but its cautious behavior cost it some share value. Still, since the recession it’s grown a bit more than 75% and it pays a dividend of 4.18% right now. It's even increased its dividend from 38 cents to 42 cents to 43 cents per share.
General Mills (NYSE: GIS)
General Mills is the quieter GM. It just moves along, supplier something everyone on earth needs: food. Cereals, yogurt, baked goods and so forth. There are likely items in your home right now that are General Mills made and you don't even know it. But did you know the firm also has a venture cap set up to get pieces of new food product firms? General Mills is savvier than most people think. The company's shares took a dip when everyone did five years ago but began what appears to be an inexorable march to glory immediately afterward. It's up more than 85% since early 2009 and it split 2:1 in 2010 AND it offers a dividend of 2.98%. I can't say this often enough: have this in your portfolio. Have it as one of the pillars of your portfolio.
Dividend yield isn't everything, of course. There are firms out there that offer a high yield as a means to entice investors into investing, knowing that the dividend can overcome significant risk objections. Those firms I'm always leery about. But the ones I listed here aren't like those. These are good, solid stocks and just their dividends will beat the pants off treasuries. So do yourself a favor and avoid government bonds for the moment and move towards something with some real, long-term return.
Follow Nate on Twitter: @natewooley
More columns by Nate Wooley:
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