Dividend Stocks Are Bargains

Many investors have firmly persuaded themselves that their best investment course is to buy bonds, regardless of their historically low yields. This is probably a symptom of excessive risk aversion, possibly driven by ego demands to avoid ever admitting to a loss. These emotions seemed to peak during the financial panic in 2007 when the Treasury was selling plain vanilla T-bills without inflation sweeteners at negative yields but the collective memory of that troubled period still makes investors shy away from better decent risks/reward ratios.

U.S. Treasury issues enjoy a premium as "risk-free" but even some corporate bonds are sought after while their corresponding stocks are passed up. Wal-Mart just sold $5 billion of bonds including $1.25 billion of five-year bonds that yield 1.5%. Its stock (WMT-$55) yields 2.2% and it has raised its dividend annually for 36 years. Granted, WMT stock hasn't done anything for the last 10 years but that flat line is due to an overvaluation of its earnings a decade ago. It is now trading at 13 times earnings and the return to stock investors will almost certainly exceed that to those buying its new bonds. (I think investors will do even better with faster growing Costco (COST-$63).

Source: Associated Content

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