In "Building A 7% Fixed Income Portfolio," I mentioned the results of a screen I ran in search of corporate bonds yielding more than 6%, excluding those with credit ratings from Moody's and S&P below B3/B-. The screen was run in response to a question I received about creating a fixed income portfolio of individual bonds with an average yield of 7%. There were 775 bonds with 5,315 offers returned by the screen; the details of some of those bonds are presented below. They offer yields between 7% and 9% and have maturities between 6 and 31 years.
Ford Motor Company's (F) senior unsecured note (CUSIP: 345370BM1) maturing 6/15/2043 has a 7.75% coupon and is asking 106.75 cents on the dollar (7.202% yield-to-maturity before commissions). It is non-callable and pays interest semi-annually. Moody's currently rates the note Ba2; S&P rates it BB+.
J.C. Penney's (JCP) senior unsecured note (CUSIP: 708130AC3) maturing 10/15/2036 has a 6.375% coupon and is asking 89.50 cents on the dollar (7.302% yield-to-maturity before commissions). It is non-callable and pays interest semi-annually. Moody's currently rates the note Ba1; S&P rates it BB.
Goodyear Tire & Rubber's (GT) senior unsecured guaranteed note (CUSIP: 382550BC4) maturing 5/15/2022 has a 7.00% coupon and is asking 95.98 cents on the dollar (7.57% yield-to-maturity before commissions). It pays interest semi-annually and has the following call schedule: make whole call until 5/15/2017, callable at 103.50 beginning 5/15/2017, callable at 102.33 beginning 5/15/2018, callable at 101.167 beginning 5/15/2019, and callable at 100 beginning 5/15/2020. Moody's currently rates the note B1; S&P rates it B+.
R.R. Donnelley & Sons' (RRD) senior unsecured note (CUSIP: 257867AC5) maturing 4/15/2021 has an 8.875% coupon and is asking 99.50 cents on the dollar (8.957% yield-to-maturity before commissions). It is non-callable and pays interest semi-annually. Moody's currently rates the note Ba1; S&P rates it BB+.
Tutor Perini's (TPC) senior unsecured note (CUSIP: 901109AB4) maturing 11/1/2018 has a coupon of 7.625% and is asking 100.875 cents on the dollar (7.393% yield-to-par call before commissions). It pays interest semi-annually and has the following call schedule: make whole call until 11/1/2014, callable at 103.813 beginning 11/1/2014, callable at 101.906 beginning 11/1/2015, and callable at 100 beginning 11/1/2016. Moody's currently rates the note Ba3; S&P rates it BB-.
In my previous article (linked above), I mentioned that when building a portfolio of 6%+ yielding bonds in a zero-interest-rate environment, it is important to keep in mind that you will likely be purchasing bonds that will experience wide swings in their spreads to Treasuries. The direction of those swings (narrowing or widening) will be dependent on macro conditions and/or how business is going for the company that issued the bonds.
As an example of spreads changing on a bond, I mentioned the Tutor Perini note described above in a November 28, 2011 article when it was trading at 738.3 basis points over a corresponding Treasury. It is now just 610.3 basis points over a corresponding Treasury (CUSIP: 912828RP7). In other words, since that time, this note went from an asking price of 93.5 to its current 100.875. In terms of yield, that equates to a drop of 150.8 basis points. During that time, the corresponding Treasury only fell by 22.8 basis points. The remaining 128 basis points was spread contraction. Keep in mind that the same process can work in reverse if the macro environment or Tutor Perini's business should worsen.
If you decide to purchase any of the bonds mentioned in this article or other higher yielding corporates, it should not surprise you if the yields on the bonds spike higher whenever the next strong sell-off in high-yield debt appears. If mark-to-market unrealized losses are of great concern to you, then building a portfolio of individual bonds with a 7% average yield at today's bond prices might not be appropriate. If you plan to hold individual bonds to maturity and couldn't care less about mark-to-market values, then putting together a 7% average yield at today's prices is certainly something worth considering. Just remember to find the appropriate balance between the amount of money being invested and the risk profile of the investments.
In closing, please be aware that prices in the over-the-counter U.S. bond market may vary depending on the broker you use. I discuss this in my article, "Are You Paying Too Much For Your Bonds?" The current prices may also differ greatly from those listed at the time this article was written. For more information on any of these notes, including additional call or put features, please contact your broker or read the indenture.
Also, please do your own due diligence on the financial profiles of the companies mentioned in this article. Only you can determine if taking the counterparty risk of purchasing individual bonds is suitable for you.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.