10-Year Treasury Yield? Double It!

This article originally appeared on The Div-Net September 22, 2011

The 10-year Treasury is yielding 1.85% as of this writing. I currently have no exposure to bonds in my portfolio. This anemic yield is one of those reasons. Why would I want to lock in my capital for such a low yield, especially for a period as long as 10 years? Treasuries are, of course, extremely liquid and can be sold virtually at any time. Of course, if yields rise the value of your bonds go down. In that case, you’ll be accepting a very low yield and also have a investment vehicle that will be losing value when the yields finally rise. No, thanks.

Let’s instead look at three stocks that are currently yielding at least twice the benchmark 10-year Treasury. These stocks not only have double the yield payout as the 10-year, but also have a good chance for price appreciation as these businesses produce products that people need and will continue to buy. Double the yield and the chance of capital gains on top of it sounds pretty good to me.

Let’s take a look:

AT&T Inc. (T)

This major U.S. telecommunications company is currently yielding 6%. This stock actually yields over triple the benchmark 10-year. I’ve written about T a few times in the recent past. I would agree that T faces a pretty mature U.S. market, and probably doesn’t have a lot of room for blockbuster growth. I do think as people become more attached to their smart phones and data usage, these devices become as much a part of life as a house and a car does. It’s currently priced at a P/E ratio of under 9.

Raytheon Company (RTN)

This defense company isn’t the largest on the block, but it produces a pretty unique lineup of products. It currently yields 4.3%, which is over double the benchmark 10-year. It’s also trading at a pretty low P/E ratio of 7.43. I believe it’s priced so low because a lot of investors are fearful of a precipitous drop in defense spending. While this will certainly have an impact on Raytheon’s earnings, I don’t believe war is going away anytime soon. Throughout human civilization there has always been a need for defense/war products. I don’t believe this need will abate anytime soon.

ConocoPhillips (COP)

The international integrated oil company is currently yielding just over 4%, which is just north of twice the 10-year Treasury. Oil is a product that is only increasing in demand as developing countries are increasing their use of vehicles and power. Oil is also a natural resource that has a finite supply here on Earth, and we all know the rules of supply and demand. It has a P/E ratio of 8.18, which I feel is pretty attractive.

What do you think? Is double the yield attractive right now?

Full Disclosure: I’m long COP.

Thanks for reading.

Comments

  1. says

    MOA,

    Great move there! Gotta love that yield. Solid business with a manageable debt load.

    I hear you on paying down debt. Paying down debt is key and I tackled all credit card debt before starting this journey.

    Thanks for stopping by!

  2. says

    DM,

    I’m bullish on COP. I have fond memories of when I was a kid and passing a Conoco station on the way to school every morning. I would stop by the gas station and load up on Tootsie Rolls and Jolly Ranchers which I would resell to my friends at school for a profit.

    I finally made my infrastructure play. I was gonna blog about it but I accidentally tanked my entire website doing a WordPress update. Anyways, I bought 100 shares of BIP on a nice pullback. I didn’t catch the exact bottom, but pretty dang close. It has a nice 5.6% yield and currently pays out 50% of it’s income in dividends. Here is a link to a short article on BIP if your interested…
    http://www.streetauthority.com/income-investing/rockefeller-stock-i-want-own-forever-458566

    Another great article! Keep ‘em coming…

    Income Pirate

  3. says

    There are so many good dividend paying companies, it makes little sense to go for 1.85% that 10 year treasuries yield!

    I have COP and T. Both are down, but no worries, they were meant for the long term!

  4. says

    IP,

    Great move on BIP. I don’t have any MLP’s in my portfolio yet, but this seems like a solid move. I know Dividend Monk has done an analysis on it and came up with the conclusion that he’s also bullish on it. He also invested in it.

    I’m bullish on COP as well. I think energy is a strong play, and if oil continues to drop, I’ll add as necessary.

    Thanks so much for stopping by. Sorry to hear about the site crash. I hope you can get that resolved and we can continue to exchange ideas.

    Take care!

  5. says

    MoneyCone,

    I agree with you. Doesn’t make sense to snatch that low yield and lock in your capital at these levels.

    I’m looking strongly at T right now. I may initiate a position with T next month.

    Best of luck with your investments!

  6. says

    DM,

    Thanks for the tip on Dividend Monk’s blog. He’s got a great site going on over there. My site will be back up within a week.

    You got me a little hyped up on PM so I have them on my research list at the moment. I might pull the trigger on PM in mid October when I have fresh capital…

    Income Pirate

  7. says

    IP,

    PM is a great play right now as well. It’s trading well below the $65 mark I look for before adding to my position. It’s approaching a 5% yield, so it is definitely a prime pick right now. I will receive fresh capital next week and will be looking at a few purchases. The stocks I listed above, along with PM, VOD, ABT, MDT and a few others are all on my list. LMT is also up there. Great yield in the defense space right now.

    As I always say…

    So many equities, so little cash. :)

    Take care!

  8. says

    DM, I agree on PM and added to my position today right before the market close at $62.65. If it goes lower, I will continue to buy. I got in at entry yield of 4.92%..looking for buys below $61 which is over 5%.

    cheers!
    PD

  9. says

    PD,

    Great buy on PM. I don’t have capital available until next week or I would have joined you on that one. I think PM is very attractive at current levels. I hope the weakness continues for at least one more week.

    Keep up the great work!

  10. says

    1.85% is deplorable, isn’t it!?

    Nice pick of stocks. I now like AT&T more after MOA brought it to my attention earlier this week, and seeing it here makes it peak my interest even more. A 6% yield is lucrative indeed.

    I think it’s a great telco to have exposure to, and the yield is quite attractive. For a Canadian that has positions in BCE, Telus, and Rogers to name a few, the only international position I have is Telefonica.

    Nice post DM, keep up the great work.

  11. says

    TWC,

    Thanks for stopping by.

    I like T as well, as the telecoms provide some high entry yield to fuel reinvestments.

    I also have a position with Telefonica. My cost basis is higher than the current price, but I’m ok waiting until it rebounds and collecting the large dividend in the mean time. I was going to average down due the value I feel is there in the current price, but the debt load scares me a bit with this one.

    Does the debt load with TEF scare you at all?

    Take care!

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