Given current market conditions and uncertainty in regards to growth, high yield fixed income securities that are issued by corporations with low default risk are increasingly becoming more attractive. Here are several issues affecting current financial markets that should encourage investors to take advantage of these income generating financial instruments:
- The moderate sell off over the course of the last ten days, which is well exemplified through the performance of the SPDR S&P 500 ETF Trust (SPY).
- The decline in Apple's (AAPL) share price. Considering AAPL has accounted for majority of the performance in the NASDAQ index in prior quarters the fact that AAPL is downward trending now serves as an indication of the markets overall performance.
- The ongoing uncertainty in Europe regarding issues in Spain
- The uncertainty regarding the upcoming US election
The intent of this article is to provide a quick pick to investors searching for a corporate bond offering a high yield. This article provides a brief overview of the bond issuer, DuCommun Incorporated (DCO), and highlights several features of the bond that make it relatively attractive.
DuCommun Incorporated manufactures components and assemblies specifically for commercial, military, as well as space programs. DCO's products include aero-structure components, cabin interior components, metal-bond composite assemblies, switches and well as other electromechanical products.
DCO's corporate bond is currently trading at a premium. Because the bond as a very favorable after tax yield of approximately 4.4%, the current ask price is 108. The bond's CUSIP number is 264147AC3. The bond is a callable bond that was announced on 01/20/2012 with a B minus rating by both S&P and Moody's bond ratings. While it does not have the highest rating possible, investors are more than compensated with its 9.75% coupon payment. The bond does not mature until 07/15/2018. Here are a few yield calculations on the bond:
- Equivalent 1 Year Yield - 7.8524%
- Current Yield - 9.0277%
- True Yield - 7.9808%
- After Tax Yield - 4.6690%
In conclusion, diversifying away from traditional equities by using fixed income securities is an excellent way to not only reduce your expose to firm specific risk, but also generate an additional fixed stream of income.
Sources: Google Finance, Wall Street Journal, Bloomberg Market Data, and MorningStar.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.