Dividends vs. Coupons in the DJIA (^DJI)

Dividends vs. Coupons in the DJIA

This weekend's MarketWatch included "How to win the quest for yield with stocks," an article covering the quest for yield. This statement in the article got my attention: "Many companies are now paying dividends well in excess of their own bond yields."

Stocks versus bonds for income is a topic near and dear to me, so I decided to pull the thread and see how many of the 30 companies in the Dow Jones Industrial Average (INDEX: ^DJI ) have dividend yields that top their bond yields. For each of the 30 stocks, I found bond issues with about 10 years to maturity, and compared the bond yield to the dividend yield. Fourteen of the 30 have a dividend yield that tops the yield on their bonds based on recent prices.

Company	Dividend Yield	Bond Yield	Bond Matures
DuPont	3.15%	2.64%	April 1, 2021
Intel	2.99%	2.80%	Oct. 1, 2021
Johnson & Johnson	3.59%	2.21%	May 15, 2021
Kraft Foods	3.11%	2.93%	Feb. 10, 2020
Coca-Cola	2.84%	2.61%	Sept. 1, 2021
McDonald's	2.89%	2.55%	Jan. 15, 2022
Merck	4.45%	2.43%	Jan. 15, 2021
Microsoft	2.60%	2.26%	Feb. 8, 2021
Pfizer	4.03%	3.30%	March 1, 2023
Procter & Gamble	3.19%	2.25%	Feb. 6, 2022
AT&T	5.76%	3.04%	Feb. 15, 2022
Travelers	2.82%	2.74%	Nov. 1, 2020
Verizon	5.37%	3.02%	Nov. 1, 2021
Wal-Mart	2.66%	2.52%	April 15, 2021

Source: Yahoo! Finance and FINRA.org.

This yield inversion means these companies could issue debt to finance a share buyback and improve cash flow. That doesn't mean they should, just that they could. More importantly, investors looking to the bonds of these companies for income should be taking a hard look at the stock instead. If selling bonds to buy stock would help a company's cash flow, it's reasonable to expect an investor's cash flow could also improve by choosing stock over a company's bonds in some cases.

Of course, dividend yield alone isn't enough reason to make an investment. But this is fertile ground for further research. I have outperform CAPScalls on Intel (Nasdaq: INTC ) , Johnson & Johnson, McDonald's (NYSE: MCD ) , and AT&T on my scorecard; they're all up compared to their start prices, and three of the four are ahead of CAPS' benchmark.

More Expert Advice from The Motley Fool

The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. Find out which stock in our brand-new free report: "The Motley Fool's Top Stock for 2013." I invite you to take a copy, free for a limited time. Just click here to access the report and find out the name of this under-the-radar company.

Jeff Fischer and team have demystified options. And they can rack up income like $1,030... $2,626... and $3,228 on a schedule you can set your watch by!
That's why we're glad to announce every single one of their closely guarded strategies is available to YOU during May and June – 100% FREE, no strings attached! Just enter your email address in the box below...

Fool contributor Russ Krull owns shares of Intel, McDonald's, and AT&T, but none of the other companies mentioned.

The Motley Fool owns shares of Wal-Mart Stores, Intel, Johnson & Johnson, Coca-Cola, and Microsoft. Motley Fool newsletter services have recommended buying shares of Coca-Cola, Intel, Johnson & Johnson, Microsoft, McDonald's, Procter & Gamble, Pfizer, and Wal-Mart Stores. Motley Fool newsletter services have recommended creating a diagonal call position in Wal-Mart Stores, a bull call spread position in Microsoft, and a diagonal call position in Johnson & Johnson. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment icon found on every comment.