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Investing in high dividend paying companies seems to be all the rage lately. And can you blame investors? Dividend increases seem to be hitting us from all directions. My equity portfolio saw two companies raise dividends in just the past two weeks. Watching your yield-on-cost increase is certainly a good feeling, especially when the equities are simultaneously experiencing capital appreciation.

With the plunge in interest rates over the past several months, one peculiarity I’ve noticed is that more and more public companies have dividend yields for their stocks that exceed the yields on their bonds. Typically, one would expect fixed income investors to receive higher yields than investors in stocks. After all, among other things, fixed income investors want to be compensated for the risk of losing out on the capital appreciation they might realize with the stock. This is because bond prices mature at par, but equities theoretically have no upper limit to their prices.

Here are seven examples of companies with bonds yielding less than the dividends on their stocks:

Emerson Electric’s (EMR) Senior note (CUSIP: 291011BC7) maturing 11/15/2020, is rated A2/A by Moody’s and S&P respectively, has a coupon of 4.25%, and is being offered for sale at 110.319. At the current asking price of 110.319, the yield-to-maturity is only 2.936%. On the other hand, the stock is currently trading at $50.96 and pays a $0.40 quarterly dividend. This amounts to a 3.14% annualized dividend yield, which is 20.4 basis points more than the bond.

Johnson & Johnson’s (JNJ) Senior note (CUSIP: 478160AZ7) maturing 5/15/2021, is rated Aaa/AAA by Moody’s and S&P respectively, has a coupon of 3.55%, and is being offered for sale at 111.459. At the current asking price of 111.459, the yield-to-maturity is only 2.206%. On the other hand, the stock is currently trading at $64.91 and pays a $0.57 quarterly dividend. This amounts to a 3.51% annualized dividend yield, which is 130.4 basis points more than the bond. As an aside, it is interesting to note that the 5/15/2021 U.S. Treasury note (CUSIP: 912828QN3) with a coupon of 3.125% currently has a yield-to-maturity of 1.965%, which is 24.1 basis points lower than JNJ’s. This is the case despite the fact that according to S&P, Johnson & Johnson has a higher long-term debt rating than the U.S. government.

Kimberly-Clark’s (KMB) Senior note (CUSIP: 494368BF9) maturing 3/1/2021, is rated A2/A by Moody’s and S&P respectively, has a coupon of 3.875%, and is being offered for sale at 110.561. At the current asking price of 110.561, the yield-to-maturity is only 2.588%. On the other hand, the stock is currently trading at $71.17 and pays a $0.70 quarterly dividend. This amounts to a 3.93% annualized dividend yield, which is 134.2 basis points more than the bond.

Pepsico’s (PEP) Senior note (CUSIP: 713448BR8) maturing 11/1/2020, is rated Aa3/A- by Moody’s and S&P respectively, has a coupon of 3.125%, and is being offered for sale at 103.793. At the current asking price of 103.793, the yield-to-maturity is only 2.646%. On the other hand, the stock is currently trading at $62.80 and pays a $0.515 quarterly dividend. This amounts to a 3.28% annualized dividend yield, which is 63.4 basis points more than the bond.

Raytheon’s (RTN) Senior note (CUSIP: 755111BR1) maturing 2/15/2020, is rated A3/A- by Moody’s and S&P respectively, has a coupon of 4.40%, and last traded at 113.386. At the last trade of 113.386, the yield-to-maturity is only 2.586%. On the other hand, the stock is currently trading at $45.13 and pays a $0.43 quarterly dividend. This amounts to a 3.81% annualized dividend yield, which is 122.4 basis points more than the bond.

And just to show how amazing some of the dividend yields are for equities versus corporate bonds, let’s venture out to the far reaches of the yield curve with bonds maturing beyond 25 years from now.

Bristol-Myers Squibb’s (BMY) Senior note (CUSIP: 110122AQ1) maturing 5/1/2038 is rated A2/A+ by Moody’s and S&P respectively, has a coupon of 6.125%, and is being offered for sale at 131.922. At the current asking price of 131.922, the yield-to-maturity is 4.13%. On the other hand, the stock is currently trading at $31.51 and pays a $0.33 quarterly dividend. This amounts to a 4.19% annualized dividend yield, which is 6 basis points more than the bond.

AT&T’s (T) Senior note (CUSIP: 04650NAB0) maturing 9/1/2040 is rated A2/A- by Moody’s and S&P respectively, has a coupon of 5.35%, and is being offered for sale at 110.099. At the current asking price of 110.099, the yield-to-maturity is 4.706%. On the other hand, the stock is currently trading at $29.19 and pays a $0.43 quarterly dividend. This amounts to a 5.89% annualized dividend yield, which is 118.4 basis points more than the bond.

The fact that we can go out not only eight to ten years, but even more than 25 years and find corporate bond yields lower than the current dividend yield on the common stock is remarkable. Only time will tell whether this anomaly carries on or whether it becomes a blip in financial markets history.

Disclosure: I am long JNJ, RTN, BMY, T. I am also long JNJ, PEP, and RTN bonds, although not the CUSIPs mentioned in this article.

Source: 7 Companies Whose Stocks Are Yielding More Than Their Bonds