Equity shares of American conglomerate General Electric Co. (GE) have slowly gone up to $21 levels since opening just above $18 in January of this year. With recent successes on its GE Capital financing side, phenomenal new developments in R&D, and agreements to acquire smaller firms, this classic U.S. company seems to be in no danger of disappearing soon.
Several fixed-income issues from the firm, however, offer some relatively higher corporate bond market yields for potential investors. For investors wary of the risks in equities of this blue-chip company, take a look at a few of GE's corporate bonds that offer near-5% yields (I've excluded any bonds with explicitly apparent special redemption provisions):
1) General Electric Capital Corp CUSIP 36959CAA6
These financial-sector bonds are listed on the New York Bond Exchange with book entry delivery and are dated August 21, 1995. They are non-callable, taxable, and carry a maturity of August 21, 2035. Rated Aa3 by Moody's analysts who cite the below ratings drivers, these bonds have a coupon of 7.5% with semi-annual payments in February and August.
- Demonstrated support from parent GE, whose industrial businesses have Aaa characteristics
- Exposure to systemic capital market shocks given large and continuous funding requirements
- Global scale and diversification of assets and earnings sources
- Improved liquidity and capital positions
- Strong and seasoned management
- Aggregate profitability and asset quality trends over a long period are less volatile than many peers
- Asset quality and earnings trends in commercial real estate lag improvements in other business segments
- Potential operational uncertainties relating to regulatory reform
The first coupon payment on these bonds was made on February 21, 1996. The bonds are currently trading for 140.057 cents on the dollar, standing at a current yield of 5.355% and a YTM of 4.647%. 56 are currently being offered (with minimum quantity 10); for the individual investor looking to purchase ten of these issues, principal and accrued interest would come to a total cost of $14,370,29.
For investors looking for attractive GE fixed-income issues, I would recommend purchase of the above lot. Below are some lower-yielding bonds (all from GE) with different characteristics that may be worth secondary investigation in case liquidity or personal preference prevents investment in the above:
2) General Elec Cap Svcs Inc CUSIP 36959CAA6
These 225 (minimum quantity: 25) bonds are the same as above, with price at 141.029 cents on the dollar, making for a current yield of 5.318% and a YTM of 4.593%. For the individual investor looking to purchase 25 of these bonds, principal and accrued interest payments would come to a total cost of $36,168.71.
3) General Elec Cap Corp Mtn Be CUSIP 36962G3A0
There are 45 of these issues on the market with minimum purchase quantity 10; coupon is 6.15% with semi-annual pay months February and August. First coupon was paid on February 7, 2008; the bonds are dated a year before this in 2007. Again, these bonds are non-callable and taxable, with no apparent special redemption provisions. They mature on August 7, 2037, and are priced at 125.167 cents on the dollar. This translates to a current yield of 4.913% and a YTM of 4.467%. For the individual investor looking to purchase 10 of these bonds, principal and accrued interest payments would come to a total cost of $12,532.08. Moody's analysts have rated these bonds A1 investment grade for the long-term, noting that:
The stable ratings outlook reflects our expectation that GECC will continue to improve its liquidity profile. The outlook also reflects our expectation that, over the longer term, GECC will generate superior earnings and asset quality measures while maintaining strengthened liquidity and capital positions. Moreover, the stable outlook incorporates our expectation of GE's ongoing strong support for GECC.
Investors should be sure and investigate all the factors involved to see if this investment and its risk characteristics are appropriate for their investment strategy and objectives before entering into a purchase of these bonds. Still, for certain investors, the prospect of near 5% yields in relatively safe corporate fixed-income issues is quite appropriate.
Be careful when examining corporate fixed-income securities to see if any bonds in question have special redemption provisions that might result in a lower yield to worst than anticipated.
Fixed-income investors should conduct their own due diligence on all potential investments before making final investment decisions. Investors should remember that these notes are not bank deposits and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency, and that the integrity of the notes is based upon General Electric's credit solvency and ability to service its debts to bondholders and creditors into the future. Best of luck!
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in GE over the next 72 hours. I am short GE Dec 22 2012 20.0 put options.