Daily Gains Letter

Why You Don’t Need Bonds for Income Right Now

By for Daily Gains Letter |

Why you don't Need Bonds for IncomeThe flow of capital into the stock market continues to be directed toward lower-beta large-cap stocks and blue chips, and far less into growth and technology stocks.

The comparative performance of the large-cap versus smaller-cap stocks also exhibits a movement of capital into bigger companies as the stock market adopts a more defensive structure. The risk in growth stocks is continuing to grip the overall stock market.

With the move to safety, we are also seeing some capital flow into the bond market as the yield on the 10-year bond approaches the critical three-percent threshold. The higher the yield, the more enticing it is for investors to move some capital out of the stock market.

Yet while bonds are gaining some traction, I still prefer the capital appreciation component associated with the stock market versus that of bonds.

The demand for yield is even more prevalent if you are a senior seeking income or a conservative stock market investor who doesn’t like the current higher risk.

Instead of bonds, I’d prefer to take a look at some dividend paying stocks.

Consider that only the S&P 500 is in the plus this year. The Dow Jones Industrial Average entered into positive territory a few sessions earlier but has since fallen back.

The attraction of the DOW stocks is not only the capital appreciation potential, but also the dividend income stream, with the average dividend yield on the 30 DOW blue chips currently sitting near 2.72%. (Source: “Dividend Yield for Stocks in the Dow Jones Industrial Average,” indexArb web site, last updated May 19, 2014.)

The move into dividend paying stocks is more attractive given that the dividends on many of these stocks are far better than the lower yields available with bonds.

The top-five dividend paying stocks at this juncture, based on their dividend yield, include AT&T Inc. (NYSE/T), Verizon Communications Inc. (NYSE/VZ), Pfizer Inc. (NYSE/PFE), Intel Corporation (NASDAQ/INTC), and Chevron Corporation (NYSE/CVX).

At the end of the day, you cannot go wrong if you add some of these proven blue-chip dividend stocks listed on the Dow Jones Industrial Average, which have long proven to be the “Best of Breed” within their sector.

The stock market’s top blue chips include The Boeing Company (NYSE/BA), General Electric Company (NYSE/GE), Johnson & Johnson (NYSE/JNJ), The Coca-Cola Company (NYSE/KO), McDonalds Corporation (NYSE/MCD), The Procter & Gamble Company (NYSE/PG), Wal-Mart Stores Inc. (NYSE/WMT), and Exxon Mobil Corporation (NYSE/XOM).

So if you are looking for some safety but also want to stay in the stock market, take a look at these dividend paying stocks.

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