You can beat Treasury bond yields with little risk
Dear Mr. Berko:
I received a $53,000 settlement, and my lawyer has advised me to buy 30-year Treasury bonds yielding 3.9 percent. He thinks the stock market will continue to go lower. We own some of the good-yielding investments you recommended, and my wife and I want more than 3.9 percent. We are both 61, on disability and feel that we need at least 6 percent to give us some wiggle room. If you want us to follow the lawyer’s advice, we will, but we would really like to do better.
D.G., Aurora, Ill.
Dear D.G.:
Back in early 2009, when the Dow Jones industrial average looked as if it would plunge into the hobs of hell, I reached into that black hole and bought a few hundred shares of Boeing Co., E.I. du Pont de Nemours & Co., Progress Energy Inc., Avery Dennison Corp., American Express Co. and five other blue and pale-blue chips at ridiculously low prices. I bought them because their prices had collapsed way beyond what I considered to be ridiculous, because each company produced a vital product and paid a dividend in excess of 5 percent.
I figured I could hold on to those 10 issues and get a solid 5 percent to 7 percent return while I waited for their prices to return to normal. And by January of this year, those issues nearly tripled in value – though today their values have only doubled.
But I made one terrible mistake, which I continue to regret. I only bought 200 shares of each issue. Hindsight is an exact science, and of all the forms of wisdom, hindsight is the most unforgiving.
Well, you might not forgive yourself if you fail to buy AT&T (T-$27.47), which pays $1.68 per share and yields 6.1 percent. And you may not forgive yourself if you don’t purchase Verizon (VZ-$30.10), because its $1.90 dividend yields 6.3 percent. Then you may chastise yourself for not buying Deutsche Telekom (DTEGY-$13.32); the $1.03 dividend yields 7.7 percent.
And you might berate yourself if you fail to buy Telstra Corp. (TLSYY-$12.57), an Australian telephone company that pays a $1.29 dividend yielding 10.3 percent.
Certainly, these are historically excellent yields. And until AT&T finds a way to commercialize telepathic communication, the telephone industry will remain a commercial force.
However, if you feel that the market will continue to weaken, you should consider placing open orders with your broker to purchase these issues at even lower prices – which will improve the yields.
Now, go wiggle. Consider buying a few shares of each at the current price and placing an open good-till-canceled order to purchase a few more shares at a price that is 10 percent to 15 percent lower.
Though the interest of 30-year Treasury bonds is safe as sunshine, I don’t know how long the Fed will be able to maintain this low interest rate environment. So if you invest that $53,000 in 30-year Treasuries, at some point, when long rates are 6 percent or 8 percent, you will be crying in your beer. Your tears will flow even heavier because those 3.9 percent T-bonds will be worth 70 cents or less on the dollar.
Though the phone stocks may also decline, there’s still an excellent probability that they will increase their dividends.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net. ©2010 Creators.com
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