Income investors need not settle for the piddling yields many
blue-chip stocks offer today. With the right security, they
can capture far greater yield. Better yet, they can capture
this yield while reducing their risk.
That's right. Higher yield and lower risk.
The right security is an exchange-traded note (ETD), which I
discussed in detail
last week. ETDs are affordable debt instruments that are as easy
to buy and sell as any share of common stock. And because
an ETD is debt it's a contractual obligation to the issuing
company. It has a higher claim to a company's earnings and assets
compared to common stock.
Three ETDs are particularly attractive. All are high yield and
rated "investment grade," which is no surprise. Most
everyone is familiar with the strong brands and long operating
histories of these
3 ETDs from Blue-Chip Companies
Prudential Financial (
has been around seemingly forever. Over its 137 years in
business, it has grown to become one of the world's largest life
insurers, with a market cap of $39.5 billion and over $1.1
trillion in assets under management.
In other words, Prudential is a big, safe
. Unfortunately, its dividend yield - at 2.5% - is
middle-of-the-pack. Income investors can do better with
Prudential's (2053 maturity) ETD (
, which pays $1.425 in annual interest. At the current market
price, around $22.90 a share, Prudential's ETD generates a 6.2%
yield, nearly two-and-a-half-times the yield of Prudential's
Prudential's ETD is first callable in March 2018. Should it be
called, Prudential ETD investors are ensured a capital gain
because of the $25-per-share redemption value.
Anyone who has seen a power tool is likely familiar with the
Stanley Black & Decker (
brand. This blue-chip company has been around since 1843, Black
& Decker since 1910. Both brands are venerated among
professionals and amateurs alike.
That said, Stanley Black & Decker's dividend yield isn't
quite as venerated with income investors. At 2.4%, the
yield is only also-ran.
You can do better with
Stanley Black & Decker's (2052 maturity) ETD (
. This ETD yields 6.1% based on the prevailing market price and
the $1.438 annual payout. Stanley B&D's ETD is first callable
in July 2017. Like Prudential's ETD, Stanley B&D's ETD yields
nearly two-and-a-half times the common stock.
And like Prudential's ETD, Stanley B&D's ETD ensures a
capital gain should it be called at the $25 redemption value.
When Warren Buffett invested in
Goldman Sachs (
a few years ago, he bypassed the common stock. He negotiated for
income investment instead. Given Goldman's measly 1.3%
dividend yield, income investors might want to mimic Buffett's
They can do so by investing in
Goldman Sachs' (2060 maturity) ETD (GSF)
, which pays $1.531 annually to yield 6%. This is 4.6 times the
yield the common shareholders receive.
The GSF is first callable in November 2016, which is still a
year-and-a-half out. The Goldman ETD trades at a slight premium
to the $25 redemption value. So, should the GSF be called (and
because it can be called doesn't mean it will), investors could
suffer a slight capital loss. Still, they'd be well-compensated
by the additional income they would receive over their holding
I have to mention one caveat on ETDs: Be careful when
entering an order. Many share ticker symbols with other
investments listed on foreign exchanges. So be certain you
are actually buying what you want to buy when placing an
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