Saturday, November 17, 2012

10-Year Treasury Yield? Triple It!

The 10-year Treasury is yielding 1.65% 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. 

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